GM-Chrysler deal analyzed

GM-Chrysler deal analyzed
http://www.freep.com/apps/pbcs.dll/article?AID=/20070217/BUSINESS01/702170319/1014

News that DaimlerChrysler AG was discussing the possibility of selling the
Chrysler unit to General Motors Corp. cheered its mostly German stockholder
base Friday, but drew jeers elsewhere.

Analysts and industry executives questioned why GM, whose own turnaround
efforts are still under way, would use some of its $26.4 billion in cash
raised by selling profitable assets such as GMAC to buy another unprofitable
North American automaker.

The companies declined to comment on the reports.

"Anything's possible, but this one seems unlikely," said John Casesa, a
longtime auto analyst and managing partner of New York-based Casesa
Strategic Advisors LLC.

"It would increase exponentially the challenges GM faces in turning around
the company. These two companies have an immense amount of overlap in
people, plants, dealers and products, and there'll be very considerable cost
in working through all that."

Shares of DaimlerChrysler gained $3.08, or 4.4%, Friday to close at $73.33
on the New York Stock Exchange, and have gained 13.8% since DaimlerChrysler
Chairman Dieter Zetsche first said all options were on the table concerning
Chrysler's future. German shareholders own most DCX shares, and several
advocates have argued for years that reversing the Daimler-Chrysler merger
would restore Daimler's steady profits.

The finances of such a deal are certainly within reach for GM. Banc of
America analyst Ron Tadross said GM could spend $5 billion for Chrysler,
accept short-term losses of $750 million a year, and still make the deal
work assuming synergies of $2 billion a year.

But Tadross noted that a combined GM-Chrysler would be a hodgepodge of 15
brands and 10,000 dealers, compared to Toyota Motor Corp.'s three brands and
1,500 dealers. While GM would get access to Chrysler's minivans and
rear-wheel-drive sedans, the companies' lineups would overlap in nearly
every other segment.

"In addition to integration risk, we think the new company's 30% U.S. retail
share could become more vulnerable over time," Tadross said, adding that
"rebadging of vehicles is increasingly transparent to the consumer."

David Cole, chairman of the Center for Automotive Research in Ann Arbor,
said UAW President Ron Gettelfinger, a member of DaimlerChrysler's
supervisory board, may be pushing discussions with GM.

"I don't think Chrysler is going to stay in DaimlerChrysler," he said. "If I
were Ron, I would like to have, probably, an American company be the buyer
versus a Chinese company or a French company or a private-equity group."

Morgan Stanley analyst Jonathan Steinmetz questioned whether the rumors were
"at least in part posturing" by DaimlerChrysler for the UAW.

"It is unclear why the UAW would be willing to accept a GM-Chrysler
consolidation, which would reduce their bargaining position and possibly
lead to significant job cuts," Steinmetz said in a note.

 

Very simple - to allow GM to stop production of all Chrysler vehicles save
the
profitable truck lines.

The idea is that there's a certain number of new car buyers out there who
are going
to buy American no matter what, and since GM doesen't have a chance against
Toyota, their only hope is to put all the other American car manufacturers
out of
business so that the only choice for an American car is to buy GM.

What this idea also asumes, incidentally, is that Toyota is otherwise
unbeatable.
I don't believe that at all. Toyota has had their mistakes and they give
the car
buyer no more support when they produce a crappy engine that breaks down
all the time than GM does. What Toyota does have that GM does not have, is
a carefully crafted marketing propaganda marketing campaign that has
convinced
a large number of new car buyers that they cannot go wrong by buying Toyota.
It would not be impossible for GM to duplicate this. Unfortunately, one of
the
first things GM would have to do is stop trying to market cars and trucks
based on
the Testosterone Connection and start marketing them on the Reliability
Connection,
and the second thing that GM would have to do is come to grips with the idea
that
the majority of new car buyers are not $25,000 vehicle buyers, and that they
are
going to have to figure out some way that GM can sell new cars at the
$8,000-$10,000
price point, and make money.

That statement assumes that GM would want to continue Chrysler car
production.

It is not beyond the area of believability that GM is headed to becoming
nothing
more than a truck manufacturer.

Yes, part of the rumor is posturing. It's the part that assumes GM won't
simply just
close Chrysler down. That part is the posturing for the UAW - they don't
want to
let on to the UAW that they are planning on putting most of the Chrysler UAW
workers
out of work.

It is unclear how the UAW would have any power to stop it.

Ted

 

I disagree. Chevy and Cadillac are not damaged brands. Chevy's are still
the number one selling car in the USA are they not? I would think Chrysler
stays alive in cars and minivans, Chevy dumps all minivans and Buick and
Pontiac are gone for good.

 

Yes they sell a lot of cars, the problem is that they don't make money on
them.
They make money on the expensive vehicles, namely the trucks. Didn't you
read
where they just decided to dump more billions into Saturn, which has not
made
any money in the entire time that it's been in existence?

GM knows that to sell as many trucks as they do that they have to offer a
full
range of products, both cars and trucks.

So in the past what they did is subsidize the car sales with the truck
sales.

Now due to the gas crunch there's fewer large gas guzzling vehicles being
sold,
and more small economy cars being sold. It has upset the economic formula
that
GM was using. And the synergy is no longer present since econobox buyers
typically are not truck buyers, and never will be.

So GM either has to reduce their costs, so that they -can- make a profit on
their
cheaper smaller car products, or they have to sell more higher dollar truck
products. They have cut labor costs a lot and that has helped them to make
a profit
on lower and lower priced vehicles, and now they are looking at buying
market
in higher-dollar products - Dodge trucks and minivans, in this case. If GM
can
increase their higher dollar market enough, they can slice off the lower
dollar
unprofitable car lines and just dump them.

You can be the number one car seller but if your not making money on each
car sold,
your just losing money faster than anyone else, that's all.

I doubt that you will see names like Pontiac and Buick go. For the higher
dollar
vehicles, branding becomes more important to the people that buy those
vehicles.
A lot of them don't give a rat's ass that the Buick that they buy is
identical to
some other vehicle that GM makes, they are willing to pay extra for the name
Buick on the vehicle.

You have to understand people's buying habits. People will pay a dollar for
a bottle
of water that is identical to what they could get out of the tap in their
house, when
some bozo slaps a name brand on the bottle. GM kind of forgot this a few
years ago
when they shut down Oldsmobile. GM figured that all the Olds buyers would
just go
buy Chevys, since the car bodies where identical the buyers would be getting
the same
thing. What they found out what that this didn't happen, instead those
buyers just
went to other car companies.

Ted

 

You're kidding, right? Chevy has been fighting quality disasters for 30
years. And since they still have the POS 3100/3400/3500 series v6 in
production that's not going to change any time soon.

Cadillac is proof that a brand can recover somewhat from severe damage.
Remember the HT4100? The V-8-6-4? Smallblock Chevy engines hiding under
Cadillac hoods? Same for the Oldsmobile diesel?

When you factor out trucks and fleet sales, I'm not sure they are. And
its been decades since they had anything that came close to the top
selling single model, that's belonged to Ford (Taurus) and Toyota
(Camry) for at least 20 years.

Buick is probably the least damaged of all the GM brands, why dump it of
all things?!?