GM & Chrysler

As merger talks occur (but no comment from the companies of course!) I thought I'd let everyone know what this deal is really about.

NPR was talking with an editor at Edmunds and she said it was pretty much so GM can get Chrysler's cash reserves now, and have more leverage with the Feds to get money from them later. This is a high risk/reward situation. If it works GM gets lots of Fed dollars and stays afloat hemorrhaging money for a few more years. If it doesn't....well, I guess I don't need to worry about coming into work.

Talking to our Chrysler rep the other day he had a good analogy for the situation. Here's how it had been explained to him.

"You own a house and are totally upside down in a bad mortgage. Your neighbor has a bigger house, but is in the same situation. Your neighbor goes to the bank to get a mortgage to buy your house, and then proceeds to burn it down for insurance purposes."

That is, in a bit of an oversimplified nutshell, what GM wants to do. GM wants Chrysler's 10-11 billion in cash reserves. But GM also believes that if they acquire Chrysler (which would involve completely gutting Chrysler and probably all but dissolving the company) they would be more likely to get more loans from the Feds.

Talk about a risky move!

The fortunate thing is that GM's investors may not go for the deal. Cerburus is just looking to get their money so I don't think they care what happens to Chrysler if they get their money back.

Chrysler needs to hook up with a company that can benefit them now and for the future. Teaming up with Nissan or Hyundai would seem to benefit Chrysler and both of their companies by giving them a larger dealer base for pretty much free. Even Renault would be a good thing it seems for the same reason.

I just really hope the GM/Chrysler deal never happens because it is merely a ploy to try and weasel money from the government.

GM & Chrysler

Ok, I'm not a business guru, but I don't think you need to be to wonder about the merger talks between Chrysler and GM. Now, nobody knows how far along the merger talks are, and it was mentioned today that they have "slowed" because of "investor skepticism," but there still are talks of sorts.

My question is...why? Now, the simple answer is GM needs cash, Chrysler has cash. Ok, so I understand that.

Beyond the cash, what do the companies have to offer? Both have far too much production capacity. They both have line-ups that are bloated with trucks and SUVs and are trying to rapidly change that. Both have far too many dealerships. Both have too many cross-brand vehicles. (That's a matter of opinion, but I think they do.)

They are two companies with the same problems. Both are coming out with more hybrid vehicles. I for one am excited by our 5.7Hemi hybrid, which (in theory) gets our Durango/Aspens up to around mid 20MPGs. Both are slashing production as much as they can. Both would be happy to see about 1/3 of their dealerships consolidate or go under. (Rough estimate. Probably varies around the country, but I would think that 1/4 to 1/3 could go and make the parent companies happy.)

I don't know about GM, but for Chrysler I would think merging or partnering with a Nissan or Hyundai would make FAR more sense. Or even Renault. I don't know as much about Renault. Both Hyundai and Nissan would benefit from increased exposure, and Chrysler would gain from smaller more fuel efficient vehicles.

Again, I don't claim tons of business knowledge, but at least on the surface, a merger between two struggling companies with many of the same problems seems silly.