General Motors and Chrysler in Merger Talks

Photos

Could you imagine how bowtie faithful... (Photo: GM)

Would deal with Mopar loyalists? (Photo: Justin Couture, American Auto Press)

Truck people might take issue with a merger like this... (Photo: Justin Couture, American Auto Press)

....but reality is reality, and truck sales are stuck in the mud. (Photo: Dodge)

Jeep brand, and this Wrangler Unlimited model in particular, are Chrysler's crown jewels. (Photo: Trevor Hofmann, American Auto Press)

Chrysler's minivans are still the hands down dominant segment sellers. (Photo: Trevor Hofmann, American Auto Press)

When a story gets raised from internet blogs and forums to mainstream television networks it gets some respect it might otherwise not enjoy, or at least most peoples’ perceptions of TV networks lends credibility to the subject matter. In the case of General Motors and Chrysler LLC’s Cerberus being in regular talks about a possible merger, such credence is necessary to make it believable at all.

The two automakers have been after each others’ customers for decades, with Ford Motor Company also in the hunt as part of the Big 3. And as odd as it may be to hear of GM and Chrysler, two automotive powerhouses potentially uniting to become the world’s largest automaker without question, it was equally strange to learn of GM and Ford working together to make a common six-speed automatic transmission, which they did years ago and now use in many of their front-drive midsize models, or for that matter GM, Chrysler, Mercedes-Benz (the latter two DaimlerChrysler at that time) and BMW coming together to develop a new hybrid-electric drivetrain, also currently in use by Chevy, GMC, Chrysler and Dodge. Desperate times cause for desperate measures, and if there were ever two automakers more in need of unorthodox answers to complex questions it would be GM and Chrysler.

On Friday, at the tail end of what might arguably be named the most turbulent week in modern financial history unless the worst is not over yet, New York Times regulars Bill Vlasic (Detroit) and Andrew Ross Sorkin (NY) broke the GM-Chrysler story to an already shell-shocked population. With most traditions out the door and the majority of people just hoping they’ll hold onto their jobs and homes, attitudes are almost nonchalant about something that would have rocked the automotive world a few months ago.

After a week that left GM’s shares below the $5 mark and Chrysler’s parent company Cerberus Capital Management, a private equity firm, continuing with a different set of talks designed to unload the Auburn Hills automaker on France’s Renault-Nissan in a deal that the Times appropriately dubbed “two parts disturbing and one part intriguing,” it appears General Motors and Chrysler were already thick into merger discussions more than a month prior.

So how real is it? Even the NYT columnists couldn’t get any clear, concise information about the talks, or even that they were officially taking place, with GM’s spokesman Tony Cervone quoted as saying, “Without referencing that specific rumor, as we’ve often said at GM, officials routinely discuss issues of mutual interest with other automakers.” Obscure is too accurate a description, but par for the course.

Likewise, Lori McTavish, Executive Director, Communications at Chrysler submitted an official statement that’s equally obfuscating, stating, “Chrysler LLC as a matter of policy does not confirm or disclose the nature of its private business meetings. As we have said, the Company is looking at a number of potential global partnerships as it explores growth opportunities around the world. Beyond those partnerships already announced however, Chrysler has not formed any new agreements and has no further announcements to make at this time.”

As tight lipped as automaker officials are, the NYT reporters are sure of their sources, but not of a deal going through, with the article stating that “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.”

Still, one has to ask what the two automakers could offer one another in such a deal, at least from a product point of view. The reason both are struggling, other than significant resources in the very money markets that took a beating this week and a dependence on artificially lowered in-house leasing rates that are no longer part of their strategies (ok, there are other problems too) comes down to a lack of fuel efficient models to meet current demands, and as problematic, big car, truck and SUV images that cause many new car buyers to look to the imports before, or even instead of checking out a domestic brand.

Chrysler’s smallest North American car is the Caliber compact, plus its Jeep Compass and Patriot spinoffs, and compared to some others in the compact class they’re not particularly small. GM, at least, offers its Korean-made Chevy Aveo and Pontiac G3 Wave subcompact models in four-door sedan and hatchback configurations, and they sell well, plus a variety of small sedans, from the top-selling Cobalt sedan and coupe (Pontiac G4 and G5 respectively) to the European-made Saturn Astra. Both GM and Chrysler sell compact wagons too, although the HHR and PT Cruiser, the latter slated for the axe after the 2009 model year, are niche market retro models that only compete with each other. Chrysler is seeing some of its strongest sales from 4×4 brand Jeep, considered by most to be its most saleable asset, but ironically GM’s Hummer brand, targeting a similar demographic, continues to hit the automotive gossip columns as the brand most likely to get unloaded due to a lineup of slow-selling SUVs that, while stylish, very capable off-road and soon to include fuel-efficient diesel powertrains, have become symbols of excess for negative campaigning by environmental groups.

No, while there may be opportunities for GM and Chrysler to produce common components in order to save research, development and production costs, like they’ve already done with respect to the two-mode hybrid drivetrain, or other strategic business opportunities, a merger doesn’t make a great deal of sense. The thought of controlling more than 35-percent of the US vehicle market is no doubt tempting, but having to sort out which full-size pickup truck to cut, the Chevy Silverado, GMC Sierra or Dodge Ram, or which muscle car was redundant, the Dodge Challenger or upcoming Chevy Camaro would not only prove painfully difficult, but cause such tumultuous fallout from brand loyalists that amalgamating the two automakers could actually do more harm than good. And we haven’t even ventured into how government and labor relations would factor in, or if any potential antitrust issues could be overcome by stabilizing two of North America’s largest employers.

Either way, Cerberus will soon have to figure out how to cut its losses in Chrysler and GM will need to stop the bleeding before it burns through all $21 billion in cash reserves at a reported rate of $1 billion per month.

Certainly, if the auto execs running these two companies manage to pull this deal together, or alternatively just keep these two automakers afloat in such troubling times, they deserve the ridiculous bonuses they’ll probably receive at year’s end. GM has firmly stated that it’s not even considering Chapter 11, so fans of its numerous brands can rest assured, and it would be highly unlikely for Cerberus to fold Chrysler after billions in investments, but the chances of our automotive landscape looking the same after this week’s financial fallout, coming months of almost certain aftershocks and possible years of reconstruction, is slim to none.

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