GM (GM) may not be able to come up for the money to marry Chrysler. The deal could involve firing 60,000 people and paying their severance. The process of putting the two companies together would probably take more than a year. Forcing together IT structures, product management, and accounting systems is high-risk work and another expensive undertaking.
Chrysler and its largest shareholder, Cerberus, needs a partner. Chrysler sales in North America are down as much as 30% compared with last year, and Cerberus is most likely sick of writing more checks.
Renault and Nissan, which already have close ties in purchasing and product development, are talking to Chrysler about the American car firm hooking up with them. It is hard to see how Chrysler saves much money that way, but Cerberus may think that any way out is a good one. If a deal comes together it leaves GM forlorn and still bleeding cash at the rate of $1 billion a month. The largest car company in America has also talked to Ford (F) about a merger, but the smaller company is apparently not interested.
While all of this goes on, GM faces running low on money in the second half of next year.
There are probably only two car companies in the world large enough to have a merger of equals with GM or to buy the company outright. One is Toyota (TM), which certainly has the balance sheet and operating prowess to do do. But, it already has 15% of the US market and is growing. Buying GM would take its market share closer to 40%. People in Congress might be unhappy about that. Toyota may also feel it has enough exposure to the enfeebled American car market.
The other operator who has the revenue, manufacturing scope, and worldwide sales to pick up GM is VW. It has next to no market share in the US and its exposure is mostly in Europe and Asia. Since it could take tremendous costs out of GM’s administration and production operations, it could cut North American costs substantially and be well positioned for a recovery.
GM needs a home, and VW is big enough.
Douglas A. McIntye