This is part of a weekly series about the car business. The auto industry plays an important role in the global economy, and record-high oil prices and a global slowdown have contributed to a crisis in the sector. This column will highlight some of the interesting stories that emerge as that crisis plays out.
Last week, I suggested that the auto industry was ripe for consolidation (Car Biz: Look out below!). The very next day the potential merger between General Motors (NYSE: GM) and Chrysler hit the news.
I can't claim that I'm clairvoyant. I just read the news like everybody else. And overcapacity is old news in the car business. Even in good times, there are too many factories producing too many cars and trucks for too few consumers who can afford them. Some estimates put overcapacity in the industry in the tens of millions of vehicles per year. The burgeoning recession just makes this basic fact impossible to ignore any longer.
Now Chrysler CEO Bob Nardelli is joining the chorus. He recently said that the rapid and dramatic decline of sales in the American auto market "certainly creates an environment for consolidation." He also spoke about "synergies of productivity" but of course he has to say that. CEOs involved in merger talks always talk about 'synergies' even though they are rarely generated in practice.
Synergies in a potential merger between these two struggling giants (some say dinosaurs) are hard to find, even in theory. Both companies relied for years on inefficient trucks and SUVs for easy profits. Both companies produce mediocre cars that are outclassed by imports (although Chrysler is much worse in this category). And both companies are deeply entangled in labor contracts that limit their flexibility.
Even so, news of the potential merger keeps coming, with headlines in both The Wall Street Journal and The New York Times today. This suggests that the companies are indeed serious about this merger, which leads me to two conclusions: 1) GM is in even worse trouble than reported, especially when it comes to its burn rate (Chrysler reportedly is sitting on $11 billion in cash and GM really needs that money); and 2) both companies see a merger as a way to escape, at least in part, their union contracts and obligations.
The second point may be the more important one. And the unions are not unaware of what is at stake. United Auto Workers President Ron Gettelfinger said today that he is deeply concerned that a merger would mean more job losses for workers. He also said that there are things the union could do to halt the merger, but did not elaborate.
From the point of view of capital, the auto industry must be rationalized through reduced capacity and lower labor costs. A GM-Chrysler merger could help make these changes. From the point of view of workers, though, these changes are nothing short of a disaster. Given the experience of the last few decades, you can guess which side is likely to win.
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Reader Comments (Page 1 of 1)
10-17-2008 @ 4:28PM
Ashram said...
The merger would be a disastrous idea, in my opinion.
General Motors already has its own set of troubles without Chrysler adding to it.
The only thing of worth to GM may be Jeep primarily because of its following. GM does not need Dodge and they don't need Chrysler.
Heck, GM doesn't even need some of its own divisions; what do Saturn, Pontiac, and GMC do that Chevrolet can't? What does Buick do that Cadillac can't?
They don't need Dodge to compete with Saturn, Pontiac, GMC, and Chevrolet. And GM does not need a Chrysler brand to compete with Buick and Cadillac.
They may not even need Jeep save for the fact that Jeep has a positive image and is the only thing good from Chrysler.
The integration of more brands in GM's lineup will only contribute to more market cannibalism within GM. This is also in addition to the resources that Chrysler has that GM may get while in the midst of trimming their own fat.
The only ones who will benefit with a GM/Chrysler merger are the people who want to be rid of their investment in these companies in the first place.
10-17-2008 @ 6:43PM
Kent said...
We saw mergers in the auto industry before after WWII:
Packard
Studebaker
Willy's Jeep
American Motors
Hudson
Henry J. Kaiser
DeLorean
Hummer
Nash Rambler
The process continues on.
10-17-2008 @ 7:20PM
JACK said...
Go ahead Gettlefinger.....Put your nose in. If you try to stop something like this......All your members won't have a job. These companies are fighting for survival and you only worry about things in front of your face.
10-18-2008 @ 5:16PM
PHIL said...
IF THIS GOES THROUGH CHRYSLER JUST SAVED THE IMPORT AND DOMESTIC AUTO INDUSTRIES IN THE UNITED STATES ! SO TO ALL THE CHRYSLER WORKERS I SAY THANK YOU ! AND IF AMERICA DON'T SEE THAT YOUR SACRIFICE IS JUST WHAT IT DID! BOTTOM LINE ! SO THE TOYOTA FORD AND GM AND THE REST THAT HAVE FACTORIES IN THE U.S. ! CHRYSLER JUST SAVED YOUR SORRY ASS.. AND YOUR JOBS ! THANK YOU CHRYSLER WORKERS!
10-22-2008 @ 12:59PM
Frank said...
So long Chrysler it was nice knowing you! What are these people thinking except more GREED! Cerberus LLC is doing what they planned all along. Buy a company liqiudate it, and screw the economy and thousands of American workers. All you Millionaires should be VERY PROUD!Chrysler in my opinion produces a very good car, having owned many US made cars from all of the "BIG 3" auto makers my chrysler vehicles held up very well. 100+thousand miles on all of them! Like anything routine maintanance is the key. I can only hope this doesn't happen. It will be a very sad and BAD day if it does!
10-22-2008 @ 5:07PM
S said...
Why would anyone care about a company(GM) that doesn't give 2 craps about their employees? The medical stafff they have are the bottom of the barrel and purely in it ONLY for the almighty dollar...they get kickbacks for good safety numbers and low workers comp claims and it is fact then when they have employees taken to the ER by ambulance for a very painful injury, tell the employee to check in with medivcal the next day, the patient is in great pain and becauase they slimeball Dr is only concerned with money and numbers(becasue these good numbers mean more PERSONAL money for the Dr--I use the term Dr very loosely) the have employees with injuries, in pain and unable to take their painkillers back at work unable to do anything......all the slimeball Dr wants is money---why would anyone want stocks. free or not from a company that coul care less about their employees???? The employees work their butts off to MAKE THE PRODUCT THAT MAKES THE MONEY FOR THIS COMPANY and the company treats them like shit......Not only am I ashmed of "big business" in this country I am also embarassed to admit that Iam a nurse because the medical profession is a profession of slimeballs, inhumane people(with the exception of a very very few--I am a damn good nurse and I know of one Dr that is great) who don't give a damn abour care, about compassion or about people---ALL DRs care about IS MONEY MONEY MONEY MONEY.........If you work for a big corporation DO NOT report injuries because all they will do is hassle you and treat you like crap over it, and if you are in the medical profession and are among the very rare few in it who give a damn I commend you, the rest of you slimeballs are poor excuses for professionals....My family has decided that if we get sick the Dr is the last person we will ever go to.....and especially Drs like those as lousy companies like GM---don't waste your time thinking that you will get proper care or that anyone there cares...they don't give a crap about anyone but themselves and their paycheck......