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UPDATE: The Times online from the UK are being just as mischevious. See below.
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I have a feeling this is the New York Times being a little mischevious. They’re not exactly known as being fans of Detroit.
Be that as it may, they’ve run a story today claiming that there’s serious talks that have been underway for around a month now, with a view to merging General Motors and Chrysler.
The talks between G.M. and Cerberus Capital Management, the private equity firm that owns Chrysler, began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were “50-50” as of Friday and would most likely still take weeks to work out.
So they’re talking. What might be the outcome? Personally, I’m struggling to see the benefit to either party here.
If G.M., the nation’s largest automaker, combined operations with Chrysler, the smallest of Detroit’s Big Three, they would create an auto giant that would surpass Japan’s Toyota Motor Company, which recently has been battling G.M. for bragging rights as the world’s largest automaker.
Aaah. Bragging rights. Righhhhhhhht.
Honestly, other than bragging rights, where’s the benefit here. GM need to encourage dealers to close. The combined entity would have models that are out of touch with the market, too much manufacturing capacity and at a time when GM would like to reduce the number of dealers, they’d have heaps more.
Where’s the upside? Economies of scale, perhaps? Maybe, in some areas, but I can’t believe the benefits will outweigh the difficulties of unwanted stock, management cultures, dealer problems. You name it, there’s probably an issue with it.
And then there’s the brand issue. GM’s current north American stable of Chevrolet, Pontiac, Buick, Cadillac, Hummer, Saturn, GMC, Saab would be joined by Chrysler, Dodge and Jeep. They need another three brands to manage/market/develop/dilute like they need a hole in the head.
If someone’s got some thoughts as to what the benefit might be, please enlighten me/us in comments. The NYT story is pretty grey, really, calling it a 50/50 chance and saying that Chrysler are still talking to Renault/Nissan as well as to GM. Talk about covering your bases.
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The Times Online are being a little mischevious as well. They’ve actually compiled a pretty good article that’s full of what I assume are accurate figures. But then there’s this:
It is thought that the company could consider the sale of Saab in addition to Hummer, which already is for sale. GM could attempt to sell its 49 per cent stake in GMAC, the finance operation, which it believes has value because of its loan book. GMAC is 51 per cent owned by Cerberus, the venture capital group.
The sale and leaseback of GM’s headquarters is also being actively considered. Such a move would be hugely symbolic of the decline of the world’s biggest carmaker.
Notice the word “could” in relation to Saab. This is an issue that’s just way up in the air. GM have said they’re committed to Saab yet many speculate that they’re positioning them for a sale.
I don’t think the author’s got any inside info on this. I think he’s just guessing, pulling out an old story to fit his new one.
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Thanks Wulf!
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19 responses so far ↓
1 ctm
// Oct 11, 2008 at 9:06 pm
Maybe Chrysler has gone through a healthy cleanup after the Daimler fiasco, and is a lean machine that at the moment hurts only because of the general economic downturn? Then there could be some sense in having their US brands sharing platforms/components and using plants more effectively. My feeling is that Chrysler is very weak outside the US. Using GMs network of dealers world-wide could help sell more cars and have a positive effect in the end for a combined operation.
GM is getting rid of Hummer. Hummer has somehow been the definition of irresponsible and untasteful. Maybe Jeep has a better image and future as a global 4×4 brand and can compete better with Toyota’s 4×4? At least everybody knows about Jeep because of the name itself defining a type of vehicle
Chrysler and Dodge are very small brands in Sweden, so I cant say anything about them other that their cars a typical “American”. They can probably share most stuff with Chevrolet, Cadillac, Buick, and Pontiac without anyone noticing the difference.
2 MARK_BELFAST
// Oct 11, 2008 at 9:28 pm
Ha, maybe my 300c will endup being partofthe extended Saab family
3 David Blumberg
// Oct 12, 2008 at 12:18 am
GM needs to go on a diet, not get fatter. Merging with Chrysler is bad. Why did Mercedes sell Chrysler so quick?
4 ctm
// Oct 12, 2008 at 12:32 am
David Blumberg,
Interesting comment. In Swedish Auto, Motor & Sport earlier this week, there were an short interview with Knut Simonsson, Executive Director Global Brand & Sales at GM. The first question was: Why buy a Saab next year instead of an Opel or a Chevrolet? Part of his response was: “Those who buy a Saab would never consider buying a Mercedes. We have data on this and know exactly how car owners go between different brands. The exchange between Saab and Mercedes is basically zero.”
5 mo
// Oct 12, 2008 at 2:06 am
i hope gm does not do anything with chrysler. has anyone sat in their cars, feels like they make all their interiors out of cardboard. gm does not need to be connected to that.
6 Kroum
// Oct 12, 2008 at 3:27 am
I think this is pure speculation on NY Times’ behalf. Unless Cerberus is planning on buying out GM stock at their current ridiculous price and taking the General private. But at this point I don’t really see much benefit to that either.
7 ctm
// Oct 12, 2008 at 4:49 am
It has been all over the news in Sweden for 24 hours, but I can’t get a grip on were the thing started. Probably just one of all rumors that started Friday when the GM stock took a plunge on NYSE.
8 fred@dzlsabe.com
// Oct 12, 2008 at 5:51 am
Only the crack-smoking yes-men in the RenCen could think this was a good idea.
9 Johan
// Oct 12, 2008 at 7:08 am
What would the benefit be?
The biggest problem for GM right now isn’t the cars, they have finally been able to put some good models on the market, and there are more in the pipeline. This can also be seen in the sales figures, GM’s sales aren’t going down much more than other manufacturers such as Toyota for instance. Saab sales have dropped significantly, but that isn’t strange given that they basically only got one recent model for sale, and even that one is getting old. With a few more models for customers to pick between the sales should increase. The big problem however is the lack of cash on GM’s bank account. Does Chrylser have some cash on their bank account? If they do, I can see the benefit of a merger, but if not, it’s probably better to just leave it alone (let them solve their own mess); the merger would cause more problems than it solves.
I also find it hard to believe that GM would sell Saab since Saab is so well intregrated in GM these days. Not only would Saab lack the resources to develope and manufacture their own cars (which probably make them hard to sell), but GM would also lose expertise in certain important areas.
The dealer situation in the USA probably would need to be looked over. What is the reason to have different dealers for the different brands anyway?
10 Greg Abbott
// Oct 12, 2008 at 9:04 am
Supposedly Chrysler does have some cash, $11 billion or so. Whether Cerebus is willing to part with that cash for the privilege of getting out the car business is another question entirely.
If it happens, my guess is that GM keeps only Jeep out of the deal, and shutters the rest. There is zero brand equity left in Dodge, and not very much at all in Chrysler itself. Having said that, my brother bought a brand new 300 a couple of years ago with a Hemi, and loves it dearly. Supposedly there’s a lot of E class underneath the 300, and I’d imagine Chrysler is in a bit of a pickle developing the successor to the 300 without having anymore access to Mercedes technology.
11 Adam
// Oct 12, 2008 at 11:02 am
I don’t see how this can make any sense. You take two big entities losing big money and make one gigantic entity losing gigantic sums of money.
They have the same problems of legacy costs and too many dealers. It’s not like they compliment each other in any way. I think what would make the most sense would be for Cerebrus to sell Jeep and Viper to Ford and go out of business.
The biggest auto news of today is Ford is looking at selling off Mazda.
12 1985 Gripen
// Oct 12, 2008 at 11:10 am
I have read a huge percentage of Chrysler vehicles end up in fleets. If you take fleet sales out of the figures the sales numbers are even more abysmal.
Adam: doesn’t Ford only own a portion of Mazda (a majority stake)? Maybe they can sell to Toyota like GM sold their stake in Subaru to them.
From what I remember of the Cerebrus deal for Chrysler, Daimler basically PAID Cerebrus to take them off their hands. I would imagine that if there were a suitor for Chrysler (and I don’t see why there would be, with only the Jeep and Dodge Viper being really desirable) that they could have it pretty cheaply. How much you got in your wallet? That should probably be enough.
13 Markac
// Oct 12, 2008 at 11:57 am
There seems little point in two debt ridden companies merging to form an even bigger debt ridden company and it would do no good for Saab. GM already has too many brands and adding any more would make Saab’s position even worse. GM can sell Saab. It has learned most of what it wants from Saab in the past 18 years and if it thinks there are still any valuable people left at Saab. it would make them very lucrative offers to stay with GM if it was to dispose of the brand.
I proposed the following scenario earlier in the year and now it seems even more likely to happen. GM can use the new 9-5 as a brokering chip to sell Saab. It could supply the new owner cars built by Opel in Germany for a five year contract. The new owner would get the Trollhattan plant and maybe some assistance with infrastructure for a new 9-3 and a possible 9-1, or it may have to (or want to) go it alone. The 9-4x may or may not factor into the deal. GM could supply it to the new owner from Mexico or simply decide to re-badge it as a Buick or something. This is all quite possible as it is much the same deal that Ford did with the XM to sell off Jaguar. I’m sure the bean counters at GM have already looked at this.
14 Kroum
// Oct 12, 2008 at 1:23 pm
According to some newer reports, GM may trade their 49% stake in GMAC to Cerberus in exchange for Chrysler. Cerberus already owns 51% of GMAC, and reports suggest both parties are looking to offload their non-core businesses quick.
But I still fail to see much positives from such a move. Economies of scale would provide for some measurable savings (metals, parts, etc.), but the dealer bloat and debt burden may be overwhelming. We know very little about Chrysler since it went private.
My best guess is GM is looking to divest GMAC, deeply vested into the subprime crisis. If they end up picking Chrysler, they will likely close down the brand itself, keep Jeep, though I am not quite sure what they’d do with Dodge. To top it all off, there were reports GM had also approached Ford, although the latter declined.
Is Saab safe? I think it is, but I also hold the view that GM will look into selling the brand once the proper lineup has been introduced. It’s already been discussed here at length, but all the latest moves point to that. It is the potential buyers of the brand that worry me.
15 Jeff
// Oct 12, 2008 at 2:47 pm
Regardless of whether or not it makes sense from a business standpoint…General Mopar? Scary.
Actually, I wish GM owned Jeep, but besides that…Viper? Gone. Challenger? Gone. That’s enough to make me hope this never happens.
16 Tompa
// Oct 13, 2008 at 6:40 am
I know this might sound stupid.. But why not team up with Fiat? Saab and Fiat has worked with eachother just fine in the past. So why not now? Just think of bases for a future Aero X! No.. Not the Panda
17 Johan
// Oct 13, 2008 at 7:21 am
1985 Gripen: Ford owns a minority stake in Mazda and will most likely sell of some of their shares. A likely buyer is Mazda themself. Both Ford and Mazda still are in need of their co-operation though, so it’s unlikely they sell off all of it.
Jeep could possibly replace Hummer in GM’s portfolio, but Viper is more or less useless. It’s basicly a very poor selling Corvette. I wouldn’t be surprised if Viper was sold off.
GM is most likely also interrested to get rid of their light trucks business, but doesn’t seem to be able to get the amount of money they want for it.
Markac: I don’t think you really realise the situation here. Saab perform important tasks for GM, and all Saab cars are based on GM’s jointly developed global platforms, engines and transmissions. Not only that, much development work is actually done by GM in Germany. The situation is not comparable with Jaguar as the companies in Premier Auto Group was much more independant from Ford than Saab is from GM. Sure, a buyer of Saab could possibly get the rights to use the current parts, but in the long term they basicly have to restart from scratch, building a new development center, new engines, platforms and so on. GM also would be forced to move development done at Saab back to GM, or at least separate that part of Saab to GM. It would be a very messy situation that most likely GM nor Saab would benefit from.
A much more likely situation is that GM increase co-operation between their different brands and makes Saab more ‘premium’ so that it can take up competition with for instance Audi, while Opel is moved upmarket to be able to compete more directly with VW. This also makes some more room for Chevrolet at the bottom, in the low price segment. Opels for the North American market will be rebranded as Saturn. Buick will most likely be placed between Saturn/Opel and Saab on the markets which it is sold at.
18 Markac
// Oct 13, 2008 at 10:26 am
Johan: I know the situation is somewhat more complex than the Ford/Jaguar one, but not impossible. The NG900 was originally designed for a different platform to the composite GM one it ended up being built on. Had things gone differently it might have ended up on a Fiat platform.
I am just saying a new owner may decide to cooperate with GM on models beyond the next 9-5 or it may decide to go it’s own way and develop new platforms or use existing ones from it’s own stable.
When the NG900 was produced it (unfortunately) used a lot of carry over GM platform parts which were really not up task for a premium model and Saab had to try and do it’s best with them. Whoever buys Saab would have to incorporate their own platforms and engines into future models. Hopefully they would do a better job than GM. Saab by itself is not a viable entity and whilst people might dream, whoever buys it will have to incorporate into their own lineup of brands. Hopefuly they could do a better job than GM. GM’s performance with Saab this decade in particular, has been quite appalling..
19 Mats
// Oct 13, 2008 at 3:16 pm
Hmmmm…GM+Chrysler….
It’s something like this: “Hmmm, I’m bleeding from my hand, how do I fix that? I know!, I’ll chop my head off!! *ka-tchunk*”