Will General Motors Pick Up Chrysler On The Cheap?

Posted by: Bruce Nussbaum on June 27, 2008

My forecast that the cost-cutting strategy of the private equity Cerberus guys who bought Chrysler from Daimler Benz would fail is, unfortunately, turning out to be true. By hiring ex-Home Depot CEO Robert Nardelli, who’s speciality is efficiency, they embarked on a traditional business strategy of squeezing more out of existing operations at a time when soaring oil prices were undermining the sales of their gas-guzzling product. What was needed was an innovation strategy of growth that quickly generated electric, hybrid, flex-fuel and other models that better fit into a fast-changing market place.

Supplying these cars from China or anywhere around the world quickly and then investing in new models to capture market share might have saved Chrysler. But squeezing pennies out of a shrinking operations base cannot.

My guess is that GM will pick up Jeep and a couple of Chrysler lines—and that will be the end of that. Business model innovation is often the most powerful kind of innovation. It requires imagination and guts. Implementing old, tried and true, strategies in a time of dramatic change rarely work.

Reader Comments

Gumby

June 27, 2008 3:51 PM

I had been emailing to Investor Relations at General Electric urging them to take over General Motors. This will double General Electric revenues while sending a strong message to car buyers that General Motors will be around for a long time to come. This will really take a pocket change for General Electric to do this. General Electric will be very stupid not to seize this opportunity.

Eric

June 27, 2008 4:23 PM

I dont understand your statement "What was needed was an innovation strategy of growth that quickly generated electric, hybrid, flex-fuel and other models that better fit into a fast-changing market place." First,
Chrysler is launching at least 3 hybrids (Aspen, Durango, Ram) in the next 9 months. Autoweek has postulated that a slew of other vehicles will add a hybrid option later in 2009. Second, they have signed a comprehensive hybrid technology program with deep-pocketed GE (http://www.autoweek.com/apps/pbcs.dll/article?AID=/20080612/FREE/526009316/1636/green). Third, they have partnered with Chery and Nissan to bring at least 2 all new highly fuel efficienct vehicles to market in 18-24 months (lightening fast in the auto world). Seems to me that Nardelli's strategy is to cut costs ASAP to stem burn and bridge to late 2009 / early 2010 when he will have a slew of 'innovative' small and hybrid vehicles for a 'fast-changing marketplace', plus substantial savings from a lower wage base from the UAW agreement which is scheduled to go into effect Jan 1, 2010.

alan hasso

June 27, 2008 7:20 PM

Chrysler has lost money selling trucks when there was less competition, when Daimler was backing them, and when gas prices were much lower.

Chrysler vehicles have a bad image, bad rep for reliability, and they are mostly outdated trucks made in plants unionized by the UAW.

Cerberus was stupid to buy Chrysler and the only real question is when will Cerberus pull the plug.

Peter

June 27, 2008 8:19 PM

Fact is, all American companies are behind the curve due to their own ignorance. Why people insist that they make hybrids is beyond me when T/H are already doing that. For once, can these people actually be ahead of the market on something when it comes to vehicles? The last time they did that, they built those hybrid vehicles to show Washington how expensive they were, not to be the leader on something, now all they are good for is taking about capital that could be used for something else. Maybe in the hands of someone who actually knows a think of to about business not just cool car designs (Im talking about you Lutz).

David

June 27, 2008 8:23 PM

Where exactly would GM find the cash to buy Jeep? GM's cash flow is so tight that it's looking for cash to fund its operations.

A more likely scenario is a Nissan or Tata, both of which could benefit from Chrysler's distribution system, stepping up.

antonio311

June 27, 2008 8:36 PM

Unfortunately Bruce Nussbaum the person who wrote this article has NO idea about the auto industry. He just wrote this article to get readers attention, and the truth behind it has NO MERIT behind it. Chrysler is ahead of schedule! They have partnered with GE to produce electric hybrids. They are introducing 2 Hybrids within a few months. Chrysler is getting more efficient and improving the quality in lightning speed. I'm a member of the customer advisory panel, there's many new and exciting things happening at Chrysler! Chrysler will lead the auto industry within the next 5 years, maybe Chrysler will be purchasing GM?? Right Mr. Nussbaum

bruce nussbaum

June 27, 2008 9:26 PM

Folks,
Thanks to all who sent in Chrysler's plans for energy-efficient cars in the future. Perhaps they can save the company in time. But the fact is that they are not on the streets today in the US and around the world and won't be for many, many months, if then.
Bruce

Quincy

June 27, 2008 10:28 PM

GM already has enough trouble trying to pare down its SUV/truck business, including looking at the sale of the Hummer line.

Buying another troubled automaker who is heavy on SUVs and Trucks would not only be the dumbest move GM can make at this point, it is suicidal.

My assessment: Not going to happen.

jy

June 29, 2008 5:08 AM


Hey 'Cuz Brucie,

What research did you do for this piece?

The fact is that GM is looking to dump Hummer and you state that they will buy Jeep?

Hmmmmm

Caliber Driver

June 29, 2008 4:00 PM

Bruce, you're an idiot. Cars are extremelly complex, and it takes time to make the changes you suggest.

THe Daimler take over left this company in ruins.

Think about the line up Chrysler had in 1998, the year of the "merger of equals". Award winning, sylish, fuel efficient, and profitable. Diamler took the money Chrysler had banked, and sabotaged their product line, forcing the Crossfire on dealers, along with E-Class and Mercedes hardware (read heavy) on the 300, GC and Durango models.

Not only that, the DC crew kills the neon and replaces it with the Compas, Caliber and Patriot...fine cars, but no fuel efficient sedan. A disastorous decision, that Cerebus is dealing with.

Sales are tanking, yes, but Chrysler LLC is ahead of schedule, and has money in the bank.

This crisis will soon pass, and in the next two years, you'll see a company with a full range of hybrid and desiel options. In addition, zero emission electrics are on their way. Chrysler LLC is going to leap frog the competition, because GE is on our side.

GM is in worse shape than Chrysler, so any suggestion of them acquiring Chrysler is just plain stupid. If anyone would do it, it would be a Chinese or Idian automaker, or perhaps GE will give automaking a stab.

Ram driver

July 1, 2008 9:52 PM

Caliber Driver, we need to remain objective. It's not because I drive a Dodge vehicle that I am going to defend a desintegrating company. Chrysler is in the buiness of building and selling products called vehicles. When all your products are horrible in terms of interior design, look and feel cheap, get horrible fuel economy (caliber sr/t gets a lower mpg than a full size Accord), along with outdated engines that have barely been overworked over decades. You tell me how that can be fixed soon...because building entirely new vehicles and technology takes a lot of money and time. Sorry but I just don't see how they will make it. A Hybrid drive in the Durango and Aspen SUVs will not help. People shy away from big SUVs because SUVs stand for the past...and besides, the Durango is probably the ugliest, yes the most horribly ugliest SUV on the road.

Pete Mortensen

July 8, 2008 1:02 AM

I think it's too soon to call. Nardelli's focus on cost-cutting doesn't bode well for the long-term certainly -- Chrysler needs more radical change and risk-taking than it does command and control -- but you can't effect a complete turnaround of a company with a five- to seven-year product life cycle in less than a year.

Chrysler's product portfolio over the next three years should be dramatically better than what they have on the road today. And since it's now privately held, quarterly earnings aren't of critical importance. Perhaps the promise of private-equity will buy Chrysler the time it needs to get the great products and ideas that it has within its walls out onto the streets.

jeep driver

August 1, 2008 11:20 PM

Chrysler needs talented and real engineers/workers that work hard and not there for salary and prestige.
Engineers that does not abuse company resources for their personal use such as M plates and company provided cell phones.If the human resource audits these {you may think; trivial things},it adds up,the gas,text.Look how the mayor got busted,using the city's resources such as text messaging.Company provided cell phone is a good tool for committing infidelity.And think about the after effect,the decrease productivity in the workplace,questionable character and integrity of the employees,The turn around of a company begins with the very core of a company,their employees.
Honesty,Integrity,and Loyalty will make this company prosper.Not with dynamic Technology and Innovations.
Anybody that is employed by this company that resorts to dishonesty,abusive use of company's resources,don't care attitude re: cost cutting,etc,they will become a part of the stumbling block that prevents Chrysler towards prosperity and profitability.

don

October 2, 2008 2:34 PM

i think google should purchase GM, Ford and Chrysler and come out with the g-car.....

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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