51
A merger of Chrysler LLC and General Motors Corp. would reshape the North American automotive landscape, but the pitfalls are many and the advantages few.
“It really kind of feels like what happened in the 1950s when the Nashes, Packards and the Hudsons combined to save themselves against the Big Three and it didn't work for any of them,” said one long-time auto industry observer.
The most pressing reason for the potential deal is the collapse of the U.S. market that has caused billions of dollars in losses at those companies and at their Detroit rival, Ford Motor Co.
The outlook is growing grimmer by the day for the three companies as buyers shun their showrooms, credit dries up and the offshore markets they relied on to generate some profits start to shrivel as well.
Related Articles
A merger of the no. 1 and no. 3 Detroit auto makers would at least give the new company bigger scale. That would enable the company to cut some costs in the areas of steel and other commodities, which have soared in price in recent years.
A merger could also reduce the costs of developing leading-edge technologies to meet stringent new fuel requirements.
Labour costs could be lowered by slashing tens of thousands of jobs and shutting dozens of plants in North America, but that would require severance payments that might rise into the hundreds of millions of dollars.
The combined company would control about 35 per cent of the North American market and allow GM to stay ahead of Toyota Motor Corp. on top of the global auto maker rankings as measured by sales and vehicle production.
But there are two huge issues that would be difficult to unravel, even apart from finding banks to finance such a deal in the midst of the global credit meltdown.
The first is the product overlap. Both companies have relied for more than a decade on large pickup trucks and sport utility vehicles as profit centres to offset losses in their passenger car businesses. More than two-thirds of Chrysler's vehicle sales, for example, come from pickups and SUVs. That market has collapsed.
GM has also relied on similar vehicles, although it has begun improving its passenger car business and at least offers subcompact cars for sale in the United States and Canada to meet the growing demand for small cars. Chrysler has no subcompact cars.
Chrysler is almost entirely North America-focused, which means GM would gain no added heft or market share in the markets of China, Brazil, India and Russia, which are expected to dominate growth in the next decade and beyond.
The other problem GM would have to solve would be combining and slashing the vast dealership networks the two companies have in Canada and the United States.
Both companies are already in the process of doing that, but it's time-consuming and costly as GM learned when it eliminated its Oldsmobile division a few years ago at a cost of more than $1-billion (U.S.).
Solving these two problems would take four years, one industry analyst estimates.
