If GM does take over Chrysler, then Walter P. Chrysler will be turning in his grave. After all, Walter P. quit GM back in 1919 because he didn't like the direction in which the company was going, and later went on to start the company that still bears his name.
A takeover of Chrysler will be the kiss of death for the company. The only way GM can justify taking it over will be to take an axe to its operations. You think Chrysler has shriveled to a shadow of its former self over the last two years? You ain't seen nothin' yet.
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers. Follow the jump to continue reading this week's editorial.
Of course, you have to wonder why GM would consider such a plan in the first place. After all, just about every merger and acquisition in the auto industry has produced next to nothing. Ford's takeover of Jaguar, Land Rover and Volvo? An unmitigated disaster. BMW's takeover of Rover? An unmitigated disaster. Daimler's takeover of Chrysler? An unmitigated disaster. GM's takeover of Saab? An unmitigated disaster. I would also add that GM's stock holdings in Suzuki, Isuzu and Subaru did absolutely nothing for the company.
What in the world makes them think that it's going to work this time?
Even more telling, the Wall Street Journal reports that GM's Board of Directors was very cool to the idea of merging with Chrysler when management presented them with the idea. So if the history of these takeovers is littered with debris, and the board doesn't think it's a very good idea, why is GM pursuing it? Here are two theories.
First, two years ago the billionaire's club called Cerberus decided it was going to get into the auto industry and teach those mid-Western rubes how private equity can really run a car company. They were going to squeeze profits out of a bloated Chrysler, they were going to whip its suppliers into line, and they were going to bring the UAW to its knees. Then, by slamming GM and Chrysler together, they would force enough plant closings to greatly reduce the overcapacity that exists in the United States. And a new, bigger GM would emerge as the all-powerful behemoth that it used to be. Under this theory, all we've seen so far is a few pawns being moved on the grand chess board.
The other theory is pretty similar, except that it posits the Cerberus boys had no clue what they were getting into. The auto industry gobbles up cash, is a highly cyclical business, is extremely vulnerable to oil spikes and credit crunches, and takes years to put new products on the shelves. It's hard to point to any success Cerberus has had with Chrysler. In short, their foray into the auto business has blown up in their faces and now they gotta git out as fast as they can git.
But how to get out? So far no other automaker has come up to the counter to buy the Chrysler Corporation. So why not force GM to take it, whether it wants to or not?
Cerberus, which owns 51% of GMAC, moved some chess pieces around when it started tightening the screws on GM dealers, making it very difficult for them to floorplan their cars through GMAC. And then it ratcheted the game up another notch this week by saying GMAC wouldn't make loans to anyone with credit scores lower than 700, which effectively wipes out the vast majority of GM car buyers. Checkmate. Now Cerberus has GM by the throat.
If GM's customers can't buy cars, and if GM dealers can't buy them either, then GM does not run out of cash in the first quarter of 2010. It runs out of cash before Christmas.
GM responded to Cerberus's move with an unprecedented plan that incentivizes its dealers to not do business with GMAC. It will pay them a spiff to get financing from anywhere on the planet, but not from GMAC. Remember, General Motors still owns 49% of GMAC. GM is paying its dealers to avoid doing business with part of GM!
Publicly, we'll be told that this merger will produce all kinds of synergies and cost savings, and that it will be good for America. Privately, I've got to believe GM management is furious with Cerberus. But Cerberus is in the driver's seat. And it has the power to force Chrysler down GM's throat.
It's hard to tell where this is all going because every day seems to bring a new development. But there is one thing we all can be sure of. All the senior executives involved are going to reward themselves handsomely, no matter what the outcome is.
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