GM assembles group to explore relationship with Chrysler
According to the Financial Times, General Motors has actually created a group to explore a potential purchase, alliance or other relationship with the Chrysler Group. Rumors have continued to persist that General Motors is interested in outright purchasing the Chrysler Group from DaimlerChrysler, but the fact that this exploratory group is headed by the same guy, Fritz Henderson (shown), who led the team that studied and eventually recommended against a possible tie-up with Nissan/Renault, adds more fuel to the fire. Of course, GM is still sticking to its original comment on the situation, which is that it regularly has discussions with other automakers on topics of mutual interest.
So far Hyundai, Volkswagen, Fiat and Nissan/Renault have ruled themselves out as potential buyers for the Chrysler Group, though reports have surfaced that at least four private equity groups are in preliminary talks with DCX concering a possible purchase deal. DaimlerChrysler CEO Dieter Zetsche has been quoted as saying that "all options are on the table." Just like it was with the exploratory group set up to study the Nissan/Renault deal, it will be months before Fritz and the gang will be able to provide a recommendation to GM.
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Reader Comments (Page 1 of 1)
Michael Karesh 4:42PM (2/23/2007)
Henderson is GM's CFO, i.e. chief financial guy. So it would be his responsibility to head any group exploring an acquisition or merger. No mystery there.
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daniel 4:52PM (2/23/2007)
If GM does this they will deserve to go under. Are Jeep and minivans that important to them?
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stephentur 4:52PM (2/23/2007)
GM doesn't want Toyota to take #1. This will ensure that it doesn't happen in the next 5 years.
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Mike 4:58PM (2/23/2007)
When will people realize this isn't about retaining their number one position?
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RamSport47 5:25PM (2/23/2007)
"4. When will people realize this isn't about retaining their number one position?
Posted at 4:58PM on Feb 23rd 2007 by Mike"
They're too blinded by all things Asian
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Phil 5:34PM (2/23/2007)
Whatever. A bad move however you put it.
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stephentur 5:55PM (2/23/2007)
""4. When will people realize this isn't about retaining their number one position?
Posted at 4:58PM on Feb 23rd 2007 by Mike"
They're too blinded by all things Asian"
Nope I have owned 3 GMs in the past 10 years. The old "Car for every person" or something like that is not currently being provided by GM. No Mini-van, no off road focused vehicle. GM I think is trying to use this a way to leverage their negotiations with the profit destroying UAW and complete their product offering. They are also wary of the "environmental friendly" Toyota Co. and what could happen if they lose #1. I say "environmental friendly" because Toyota's market share has seen huge gains in the gas guzzler truck and SUV segments.
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UH2L 6:16PM (2/23/2007)
It may be bad from a short-term financial standpoint, but it is easy marketshare and some great products could be leveraged such as
the minivan platform
the 300/Magnum/Charger platform
Hemi engines
The deal would also add Jeep expertise to their Hummer off-road design capabilities. One other thing is that by buying Chrysler, they can eliminate some offerings that compete with GM's current products.
Atul
http://www.realitydriven.com
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thomas 6:36PM (2/23/2007)
Financial woes aside, doesn't Chrysler seem like a better marriage with Ford? Ford fails in big powerful sedans, minivans, a Vette/Viper-like competitor, and a Jeep-like offering. Those are the only 4 things Chrysler has to offer...
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Jit 7:23PM (2/23/2007)
GM is going under because of its stubbornes to concede number 1 position. Don't forget that GM will still be one of the worst run companies of the market while toyota will be the best.
Buying Chrysler would only make sense by killing some companies which they can't afford to kill meaning more overlapping. GM is doom and rightfully so.
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Richard 7:37PM (2/23/2007)
9. thomas wrote "Financial woes aside, doesn't Chrysler seem like a better marriage with Ford? Ford fails in big powerful sedans, minivans, a Vette/Viper-like competitor, and a Jeep-like offering. Those are the only 4 things Chrysler has to offer..."
Ford? Ford is in terrrible shape. Just a few weeks ago, there were rumors about a possible GM buyout of Ford.
Also, remember that Jeep used a substantial number of GM components when Chrysler bought it. Those were eventually replaced by Mopar parts, but the point is that GM and Jeep have a history.
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david 7:55PM (2/23/2007)
jit, (should be nit-wit) you on prozack or something? if you really believe gm is going under, boy have i got some muffler bearings and bumper springs to sell you. where do you fools come up with this crap. and toyota the best? now i know you're on lsd.
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airport krishna 8:40PM (2/23/2007)
This deal's a bust, Chrysler's a but because one weak company - GM- doesn't need another weak partner, they're bloated enough already.
Between Ford, GM and Chrysler, does America need 15,000 dealerships? Wall Street kills them all the time for such a purely, transparently wasteful organization full of overhead with incredible supply greater than demand - that situation can't last. Toyota sells everything out of 1600 dealerships - super efficient with cars not staying on the lot very long.
Just because the DCX shareholders want to dump their American arm doesn't mean there's a ready buyer - at least one who will pay more than fire sale prices. The asset base, Jeep, and a few platforms, engines and factories are pretty slim pickins'.
15,000 dealers can survive the coming shakeout. Too late to market their way out of it.
People are fed up and have voted their dollars on cars that don't break, and dealers who don't waste their time.
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ckm 9:08PM (2/23/2007)
I still think that PSA (aka Peugeot and Citroen) are a highly likely buyer as they have zero presence in the US market and have past relationships with Chrysler (they bought Chrysler Europe). Fiat was the other strong possibility, although, unlike PSA, they have a US market strategy with Maserati and Alfa. Chrysler's 'platforms' are not worth that much to an existing car company, esp. since all but the minivan's are in fact older, need to be renewed platforms. It's mostly about brand, market share/presence and possibly technology.
I hope for Chrysler's sake that a private equity group does not buy it as they would likely split it into component parts. However, it really doesn't seem like the kind of business they like to buy as the cashflow is not strong enough.
Chris.
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DanMan 9:12PM (2/23/2007)
There was a good cartoon on MSN this week explaining these rumors. It showed GM as a large fish skelleton gobbling up a smaller fish skelleton labled Chrysler.
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Jit 7:15AM (2/24/2007)
David (#12) Are you retarded or just plain stupid and blind? How on earth can Gm not go down they are selling their profitable company to get money together to fund their restructuring. They can't even go to the bank because in the banks eye they are worth nothing (Junks status) and so the inerest is through the roof.
http://www.ft.com/cms/s/6e8feb8e-bd85-11d9-87aa-00000e2511c8.html
Toyota made more profit in the last quarter then GM has in the last FEW years. Toyota is fast becoming number 1 car company and there is a reason why. Fewer brands and more effeciency with only three brands compared to some eight of GM.
Bu the way technically at the moment Chrysler is worth more then GM -
Gm net worth is $20 Billion
Daimelrchrysler net worth is $75 Billion divide by two (As Chrysler is half of DC) = $37.5 Billion
If this buyout goes through then they should make a film about it calling it TITANIC PART II
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fractal 9:05AM (2/24/2007)
Toyota is already dominating in terms of the R&D money they invest back in their business.
If you were an entrepreneur with a great idea, great piece of technology, who would you partner with/sell to? Not GM, Chrysler or Ford where it may never see the light of day - you'd sell to Toyota or Honda where you'd actually see some traction - just as entrepreneurs did in the 20's when Detroit was the silicon valley of the world.
GM desperately looking for a partner to stay alive a few more years, o.k., but they're not strong in the fundamentals. They've p'd off so many customers for so many years yet arrogantly think all they have to do is build quality cars and people will come back - more delusional thinking at play.
The once cocky Chrysler used to laugh a few years ago at the foibles and arrogance of GM - "Mount Zarella" at the auto show. Then Lutz switched benches and both companies are now out at sea, clinging to the same flimsy raft.
It's the bed they've made by navel-gazing, sipping brandy and celebrating instead of having more of an edge about their work, investing more in research than keeping the dealers happy and "keeping America rolling" - now in that bed they're laying.
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Stéphane Dumas 9:35AM (2/24/2007)
I saw Peter DeLorenzo's rant about this on Autoextremist http://www.autoextremist.com/page2.shtml#Rant I decided to quote what he thinks about this.
"The GM-Chrysler Deal - A Disaster of Historic Proportions? Or an opportunity that just cannot be passed up?
Detroit. I actually wasn't going to write about the potential of GM buying Chrysler this week, especially since the dissecting, hand-wringing and hyperventilation by every media faction and the burgeoning hordes of instant auto industry "experts" on the web have reached epic proportions. Besides, if you want to read the definitive piece on the subject you should just check out David Welch's take on things this week for BusinessWeek. But, since this involves Chrysler, a car company I've gladly covered (and hammered) over the years, and General Motors, the car company I know probably better than anyone else covering the business out there, sometimes you just have to do what you have to do.
Yes, I could instantly see GM's perspective on all of this, and if you were to tap into their latest thinking out loud it would go something like this: "We'll cherry pick the stuff that matters. We'll take the minivans and offer them through select parts of our existing divisional lineup. We'll take the Jeep franchise because to be able to get it this cheap is a no-brainer, and we can fold it into our existing Hummer lineup. We'll delete the bad nameplate extensions they've been screwing around with, and we'll focus on the Wrangler, which will accelerate the development of the smaller 'H4' we've been playing with for four years now. As a matter of fact, we'll call the whole thing HummerJeep, and we're good. We'll take their best plants and use them to our advantage. We can accelerate our hot new rear-wheel-drive cars like the Pontiac G8, the new Chevrolet Impala, the Camaro and the Pontiac GTO to market by building them where the 300C/Magnum/Charger are being built, along with our own facilities. We'll extend our architecture-sharing technology program to include the Dodge truck lineup, but we'll eliminate the weak links and streamline that too. And we'll eliminate any other products that don't measure up, but we'll extend our exciting - and more contemporary - vehicle architectures to the ones worth keeping. When we get it all squared away, we'll have a stronger GM, plus the newly strengthened, newly focused company will not be knocked-off of its "No. 1 automaker in the world" perch for a long, long time - if ever."
Sounds simple, right? Nah, not even close.
When you have a car company that already consists of too many divisions + too many nameplates + too many dealers + too much plant capacity + too many employees, and you add another car company with all of those problems and more, you could be brewing up a recipe for total disaster.
If GM absorbs Chrysler, the long-term positives are indeed measurable and attractive, but the short-term headaches would be absolutely staggering. Thousands of Chrysler employees would lose their jobs as redundancies are eliminated. and on top of that, the legacy costs that GM would have to immediately bear would be crushing. Not to mention the fact that the UAW would be staring down the barrel of an even more drastically negative negotiating platform for the upcoming contract talks this summer - and if they don't come around to the notion that there will be fewer jobs at lower pay points and they decide to throw a wrench into the works by balking at the whole mess - then the domestic auto industry could be paralyzed and sent into a final pirouette right into the ground.
But the gnarliest component in all of this is the Chrysler Group dealers. The franchise laws in this country are so tight and unforgiving to the manufacturers that GM would have to undertake the most expensive dealer franchise buyout in automotive history, because there are simply too many of them for the combined organizational structure. And seeing as GM just did this not too long ago with Oldsmobile dealers, they are well aware of how costly and acrimonious this whole undertaking would be.
It would take a huge amount on GM's part to accomplish this transition. And it would divert the attention of many top executives just when GM is actually showing signs of product and marketing life after years of being lost in the desert of mediocrity.
Is it really worth it?
Well, at the end of the day it just might be, because despite all of the negatives and all of the horrendous short-term horror stories associated with this move and the absolutely decimating effect it would have on this region in terms of the loss of white and blue collar jobs - a region that really can't withstand one more shred of bad news - the bottom line is that GM would be acting in their long-term best interests by buying Chrysler.
Why?
Forget about the whole ego thing of retaining their "No. 1 automaker in the world" title too. That's not the overriding factor in this decision, and it's frankly irrelevant. The real reason behind GM's interest is that they're adopting a defensive posture as much as anything else by going after Chrysler's shining assets - the Jeep brand, the minivan franchise, the Chrysler Group's "A" assembly facilities - and that means they are willing to do just about anything to prevent those assets from falling into the competition's hands (the Chinese, VW, etc.), who are all expected to be interested in bidding on the Chrysler Group. And GM believes in this idea so strongly that it's willing to take on the huge challenge of assimilating the best bits of Chrysler into the GM system, even though the odds are stacked against them.
This business going forward will be about having a competitive global operating structure and having the right products. That means that further consolidations are not only inevitable, they're essential. The big auto conglomerates have been growing over the last few years by swallowing up the smaller companies, but now even the bigger, more attractive players are starting to emerge as targets - beginning with the Chrysler Group.
And it may just be the one opportunity that GM just cannot pass up.
Thanks for listening, see you next Wednesday."
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Jit 9:57AM (2/24/2007)
What abou the $18 billion pension baggage that will go to however buys Chrysler. Do your calculations right and add 18 billion to 14 billion and you get $32 BILLION only 4 less then what Daimler-benz paid.
Plus how to you pay to close plants, buy contracts out and close plants with no money and a decline profit and market share
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