Nobody seems to mention that GM would have more US market share by default if they bought Chrysler, which might enable them to increase prices.
It would give GM back the title of the worlds largest vehicle maker (which is currently closely contested between them and Toyota). For what-ever that's worth.
BTW, Cerberus already owns 51% of GMAC while GM owns the rest.
I haven't heard anything so far if Daimler would exit their remaining share of Chrysler if this happens.
And from here:
"The negotiations have been complicated by the disclosure last week that they were taking place even though they were at a preliminary stage. But officials on both sides want to conclude a deal quickly -- preferably before the presidential election on Nov. 4, when candidates might be more amenable to requests for help."
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BY TIM HIGGINS and KATIE MERX ? FREE PRESS BUSINESS WRITERS ? October
18, 2008As General Motors Corp. executives work on what a possible merger with Chrysler LLC would look like, they apparently are not discouraged by the idea of adding more brands or dealers to the automaker's business, key factors that analysts have been criticizing.
If a merger is consummated, Chrysler's brands would become just like Chevrolet, Pontiac and Buick, people familiar with the situation tell the Free Press.
Conflicting brands could be dealt with in a few years after this industry turmoil has passed, one of these people added.
Another concern raised by analysts and other observers regards the addition of 3,500 Chrysler dealers into GM's already over-dealered network.
One person told the Free Press that those "excess dealers" would cost GM nothing in the short-term and that some -- if not many -- will fail on their own anyway.
Such a combination and digestion strategy would be in line with GM's origin and its 100-year history of buying other brands and car companies to provide a product for every purse and purpose.
There is no certainty yet that any deal will come to pass. Smaller ventures or deals with other automakers could be pursued. But a straight-out combination of operations is the assumed model for GM's team, led by President Fritz Henderson and Ray Young, his chief financial officer.
Cerberus wants a stake in a combined GM-Chrysler and could get a larger stake in GM's financing arm, GMAC. Cerberus already owns 51% of GMAC.
A person briefed on the talks said Cerberus wants to keep a stake in a combined automaker to ensure its GMAC lending business is tied to an automaker when the auto industry rebounds down the road.
Chrysler, GM and Cerberus are mum about any potential deal.
Cerberus acquired majority control of Chrysler last year from then-DaimlerChrysler in a $7.4-billion deal that involved Daimler spending money to get rid of its U.S. unit.
Since then, the U.S. auto industry has seen tremendous sales declines in part because of high gasoline prices and now turmoil in the financial markets that has made getting credit difficult.
The Wall Street Journal has reported that GM hopes to have a deal by the end of the month.
Several analysts have speculated that GM is interested in Chrysler in part because of the Auburn Hills automaker's supposed pile of cash. Chrysler has said that it ended June with $11.7 billion in cash and marketable securities.
GM, meanwhile, is burning through more than $1 billion in cash a month, and analysts are cautioning that the automaker could run out sometime next year.
Meanwhile, GM executives see billions in cost savings that could be had from a merger with Chrysler. The idea being that GM could pick the best of the two companies, keep the sales revenues and ditch the redundant fixed costs.
A person briefed on the strategy said GM is particularly interested in Chrysler's Jeep brand and minivans. There is even some interest in the Chrysler brand, this person said.
Others are not so sure.
"A longtime, frequent criticism of GM is that they've had too many brands out there, so pulling in a few more seems to be contrary to what they've been espousing for a while," said Joe Magyer, senior analyst with Motley Fool.
Kevin Tynan, an analyst at Argus Research, also sees little gain for GM by adding Chrysler, Dodge and Jeep brands.
"You're not getting anything global from Chrysler," he said. "I fail to see what the value is in those three brands. Jeep's not even worth what it was."
Lincoln Merrihew, an industry analyst with TNS Automotive, said a merger could result in savings but it could be 10 years down the road.
"It's extremely expensive," he said of merging auto companies. "You're buying out dealers, you're merging brands, you're paying the staff to go away, white-collar, blue-collar. It's a short-term expense with a long-term gain."
He expects that a merged GM-Chrysler would work to consolidate its dealer body over time. GM has 6,500 U.S. dealers.
Auto dealers in general are struggling across the country, especially dealers selling Detroit vehicles.
Steve Girsky, a former Morgan Stanley analyst and adviser to GM Chief Executive Officer Rick Wagoner, said in 2007 that two-thirds of domestic-brand dealerships needed to go before the remaining stores would be as profitable as import-brand dealerships.
National Automobile Dealers Association Chairwoman Annette Sykora said last week that the nation's troubled economy could contribute to 700 dealers going out of business this year.