GM Buying Chrysler Rumor — Redux

Just a year and a half since the last time that similar rumors hit the world, again the buzz in the business world is that General Motors is considering buying a controlling stake of Chrysler. This time, though, it might turn out to be true.

Quite a bit has happened since February of 2007, when GM initially walked away. Chrysler was purchased by Cerberus, which quickly found out the extent of the company’s horrible problems. Then gas prices soared…then the credit crunch. If we were Cerberus, we’d want out too!

Everyone seems to be asking: “why would GM want Chrysler?” Here’s a list of pros and cons:

Pro –

  • Chrysler has some of the most advanced plant facilities in the world. Utilizing “flex line” operational technology, some of the facilities are able to build many different cars on the same line. This allows the company to build based on market demand without the need to stop and change production lines – something that is currently killing GM. And Chrysler’s overall value is so low, GM could conceivably buy the company and kill it for its factories for less than the cost of modernizing some of its existing ones.
  • Chrysler’s share of the government’s $25 billion bailout.
  • Getting the “Lebaron” name and preventing it from being used on anymore horrible vehicles that can bring further insult to the name of the great coachbuilder of the pre-WWII era.
  • Ummm….that’s about it.

    Con –

  • Chrysler has the single worst product family for modern market conditions. Most of the company’s star vehicles rely on Hemi V8 and V10 engines that consume gas like beer in a Boston pub on March 17th.
  • Chrysler’s product family offers nothing that isn’t already offered by GM, other than a good minivan (a declining segment.) The 300/Charger competes with Impala, Lucerne and STS, to some degree. Camaro will steal dollars for Challenger. Jeep certainly offers better products than Hummer, but both brands draw from the same pool, and neither look to have good sales over the foreseeable future. Even the Viper is basically in direct competition with Corvette.
  • Just what GM needs – hundreds of additional dealers with under-trained sales and service staff whose primary goal is to get people to circle “completely satisfied” on surveys solely for the purpose of winning corporate recognition (instead of actually having completely satisfied customers!)

    In the end, the only thing we could understand is if GM pulled a Microsoft – buying a company simply to remove it from the marketplace. Chrysler is too costly and too far behind to be anything other than akin to trying to restore a rotten 80’ sailboat. (Read: money pit with no hope of breakeven.)

    We’re going to guess that this just isn’t going to happen, because it makes little to no sense for GM. Though GM has been guilty of plenty of shortsighted decisions in the past, but they’ve made only a handful of downright stupid ones. Only if Chrysler’s share of the bailout funds, plus the value of its modern plants minus the cost of changing the plants to build core GM future products (like the Volt and other plug-in versions of Cadillac, Chevy, Buick, Pontiac, and Saturn offerings) far exceeds the cost of purchasing the company will it go ahead.

    After all…even some still working in GM are old enough to remember how merging Packard and Studebaker (two ailing car companies) turned out!

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  • One Response to GM Buying Chrysler Rumor — Redux

    1. A few thoughts:

      1. Chrysler actually has CARS in its portfolio. Sure GM does too, but only rental fleets buy them. Other than the Corvette, I don’t see ANY GM *cars* on the road around here. Plenty of godawful sebrings, neons, & 300s though. From GM, all I see are Tahoes, Suburbans, Yukons, and Pickups. Period. When it comes to CARS the only thing GM is marketing is the Volt, which is vaporware.

      2. Makers have to jettison the dealers. They are an anachronism. The car buying experience is just. pain. awful. Service departments are seen as a revenue source, not a loyalty creator. I will never buy another new car ever again. I will never bring a car to a dealer for service, ever again (except for a recall.) My next new car will be bought online, so until Amazon starts selling cars, or I can order one on the manufacturer’s website, I’m out.

      I suspect the same holds true for many people.

      3. GM doesn’t NEED to buy anyone. They are already in trouble. Getting bigger won’t help them… only add more weight to the crashing plane. If Chrysler has something GM needs, either hire it, or just wait for Ch7 and snap it up for a song.

      I’m actually surprised none of the Big 3 have declared Ch11 yet to be honest.

      Finally: I recall Bob Lutz saying once something along the lines of “Nobody could have seen this coming” with regards to the rapid rise of oil prices and the slump of the SUV market. This was even before the economy started tumbling. I call bullshit. We all saw it coming. I know I did. In the late 90s I lived for a while in Europe and lived with more-than-$4 fuel first-hand, years before it arrived here. In 2001 when wars started appearing on the horizon I started the process of trading the entire family fleet to Diesel power. Not an easy thing to do in America where Diesel cars are as rare as bikinis on Baffin Island. By 2003 we were all oil-burning and I was starting my project of personal energy independence. By the time fuel hit $4 a gallon I was making enough to power my own fleet, plus a few other cars in a little BioDiesel co-op. My cost for making my own fuel is still under $2 a gallon. The only things I own that burn gasoline are my classic car and my lawnmower. When Katrina was still in the gulf I filled every gas can I had with sub-$3 gas and ran my mower on that until this summer.

      Am I some sort of prescient genius? Hell no. I’m just a reasonable human being who can see what is happening in the world around me.

      So then why did GM (& Ford, & D-C) continue to build mostly big trucks and SUVs? How come they didn’t put any effort into economical cars? The Volt is too late. They should have had a slew of small car options by now! Katrina was THREE YEARS AGO. The invasion of IRAQ was FIVE AND A HALF years ago! I saw this coming. Plenty of people saw this coming. How come nobody at GM saw this coming? Why do these guys still have a job? If I were a stockholder I’d be wanting heads on a platter.

      –chuck

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