GM-Chrysler deal analyzed

GM-Chrysler deal analyzed http://www.freep.com/apps/pbcs.dll/article?AID=/20070217/BUSINESS01/702170319/1014
News that DaimlerChrysler AG was discussing the possibility of selling the
Chrysler unit to General Motors Corp. cheered its mostly German stockholder base Friday, but drew jeers elsewhere.
Analysts and industry executives questioned why GM, whose own turnaround efforts are still under way, would use some of its $26.4 billion in cash raised by selling profitable assets such as GMAC to buy another unprofitable North American automaker.
The companies declined to comment on the reports.
"Anything's possible, but this one seems unlikely," said John Casesa, a longtime auto analyst and managing partner of New York-based Casesa Strategic Advisors LLC.
"It would increase exponentially the challenges GM faces in turning around the company. These two companies have an immense amount of overlap in people, plants, dealers and products, and there'll be very considerable cost in working through all that."
Shares of DaimlerChrysler gained $3.08, or 4.4%, Friday to close at $73.33 on the New York Stock Exchange, and have gained 13.8% since DaimlerChrysler Chairman Dieter Zetsche first said all options were on the table concerning Chrysler's future. German shareholders own most DCX shares, and several advocates have argued for years that reversing the Daimler-Chrysler merger would restore Daimler's steady profits.
The finances of such a deal are certainly within reach for GM. Banc of America analyst Ron Tadross said GM could spend $5 billion for Chrysler, accept short-term losses of $750 million a year, and still make the deal work assuming synergies of $2 billion a year.
But Tadross noted that a combined GM-Chrysler would be a hodgepodge of 15 brands and 10,000 dealers, compared to Toyota Motor Corp.'s three brands and 1,500 dealers. While GM would get access to Chrysler's minivans and rear-wheel-drive sedans, the companies' lineups would overlap in nearly every other segment.
"In addition to integration risk, we think the new company's 30% U.S. retail share could become more vulnerable over time," Tadross said, adding that "rebadging of vehicles is increasingly transparent to the consumer."
David Cole, chairman of the Center for Automotive Research in Ann Arbor, said UAW President Ron Gettelfinger, a member of DaimlerChrysler's supervisory board, may be pushing discussions with GM.
"I don't think Chrysler is going to stay in DaimlerChrysler," he said. "If I were Ron, I would like to have, probably, an American company be the buyer versus a Chinese company or a French company or a private-equity group."
Morgan Stanley analyst Jonathan Steinmetz questioned whether the rumors were "at least in part posturing" by DaimlerChrysler for the UAW.
"It is unclear why the UAW would be willing to accept a GM-Chrysler consolidation, which would reduce their bargaining position and possibly lead to significant job cuts," Steinmetz said in a note.
-- "The king of Israel answered, "Tell him: 'One who puts on his armor should not boast like one who takes it off."
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http://www.freep.com/apps/pbcs.dll/article?AID=/20070217/BUSINESS01/702170319/1014
stockholder
unprofitable
Very simple - to allow GM to stop production of all Chrysler vehicles save the profitable truck lines.
The idea is that there's a certain number of new car buyers out there who are going to buy American no matter what, and since GM doesen't have a chance against Toyota, their only hope is to put all the other American car manufacturers out of business so that the only choice for an American car is to buy GM.
What this idea also asumes, incidentally, is that Toyota is otherwise unbeatable. I don't believe that at all. Toyota has had their mistakes and they give the car buyer no more support when they produce a crappy engine that breaks down all the time than GM does. What Toyota does have that GM does not have, is a carefully crafted marketing propaganda marketing campaign that has convinced a large number of new car buyers that they cannot go wrong by buying Toyota. It would not be impossible for GM to duplicate this. Unfortunately, one of the first things GM would have to do is stop trying to market cars and trucks based on the Testosterone Connection and start marketing them on the Reliability Connection, and the second thing that GM would have to do is come to grips with the idea that the majority of new car buyers are not $25,000 vehicle buyers, and that they are going to have to figure out some way that GM can sell new cars at the $8,000-$10,000 price point, and make money.

cost
That statement assumes that GM would want to continue Chrysler car production.
It is not beyond the area of believability that GM is headed to becoming nothing more than a truck manufacturer.

were
Yes, part of the rumor is posturing. It's the part that assumes GM won't simply just close Chrysler down. That part is the posturing for the UAW - they don't want to let on to the UAW that they are planning on putting most of the Chrysler UAW workers out of work.

It is unclear how the UAW would have any power to stop it.
Ted
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I disagree. Chevy and Cadillac are not damaged brands. Chevy's are still the number one selling car in the USA are they not? I would think Chrysler stays alive in cars and minivans, Chevy dumps all minivans and Buick and Pontiac are gone for good.
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http://www.freep.com/apps/pbcs.dll/article?AID=/20070217/BUSINESS01/702170319/1014
Chrysler
Yes they sell a lot of cars, the problem is that they don't make money on them. They make money on the expensive vehicles, namely the trucks. Didn't you read where they just decided to dump more billions into Saturn, which has not made any money in the entire time that it's been in existence?
GM knows that to sell as many trucks as they do that they have to offer a full range of products, both cars and trucks.
So in the past what they did is subsidize the car sales with the truck sales.
Now due to the gas crunch there's fewer large gas guzzling vehicles being sold, and more small economy cars being sold. It has upset the economic formula that GM was using. And the synergy is no longer present since econobox buyers typically are not truck buyers, and never will be.
So GM either has to reduce their costs, so that they -can- make a profit on their cheaper smaller car products, or they have to sell more higher dollar truck products. They have cut labor costs a lot and that has helped them to make a profit on lower and lower priced vehicles, and now they are looking at buying market in higher-dollar products - Dodge trucks and minivans, in this case. If GM can increase their higher dollar market enough, they can slice off the lower dollar unprofitable car lines and just dump them.
You can be the number one car seller but if your not making money on each car sold, your just losing money faster than anyone else, that's all.
I doubt that you will see names like Pontiac and Buick go. For the higher dollar vehicles, branding becomes more important to the people that buy those vehicles. A lot of them don't give a rat's ass that the Buick that they buy is identical to some other vehicle that GM makes, they are willing to pay extra for the name Buick on the vehicle.
You have to understand people's buying habits. People will pay a dollar for a bottle of water that is identical to what they could get out of the tap in their house, when some bozo slaps a name brand on the bottle. GM kind of forgot this a few years ago when they shut down Oldsmobile. GM figured that all the Olds buyers would just go buy Chevys, since the car bodies where identical the buyers would be getting the same thing. What they found out what that this didn't happen, instead those buyers just went to other car companies.
Ted
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The Henchman wrote:

You're kidding, right? Chevy has been fighting quality disasters for 30 years. And since they still have the POS 3100/3400/3500 series v6 in production that's not going to change any time soon.
Cadillac is proof that a brand can recover somewhat from severe damage. Remember the HT4100? The V-8-6-4? Smallblock Chevy engines hiding under Cadillac hoods? Same for the Oldsmobile diesel?

When you factor out trucks and fleet sales, I'm not sure they are. And its been decades since they had anything that came close to the top selling single model, that's belonged to Ford (Taurus) and Toyota (Camry) for at least 20 years.

Buick is probably the least damaged of all the GM brands, why dump it of all things?!?
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