How a Bankrupt GM Should Merge with Chrysler

Monday I sketched out a possible financial plan for how GM might be restructured within bankruptcy. Tuesday, Andrew Ross Sorkin provides the other side of the coin -- the operational side of things. Which, in his plan, includes a merger with Chrysler (DCX):

The merger should reduce costs by as much as $7 billion. But that's not the tough stuff. The harder decisions are these: Both companies would have to jettison brands -- lots of them. In the case of G.M., frankly, the only ones worth saving are Cadillac, Chevy and Buick. (Buick? Yes. Despite its lackluster sales and fuddy-duddy image in the United States, it's a huge seller in China.)
That means Saturn, Pontiac, GMC and Saab would all disappear. Deutsche Bank estimates that reducing G.M.'s brands from eight to three would bring down the company's cost base by $5 billion annually. If you're able to shut the dealerships too, lop off another $4 billion. Chrysler is an even sadder situation: the only brand with any value is Jeep. Its Dodge Ram truck lineup could be merged with Chevy, which would also pick up pieces of the GMC business. And Chrysler's minivan business could be combined into the Chevy brand as well.
In all, the 35 plants of G.M. and Chrysler would probably be cut by half.

If Buick's big in China, it should be sold to China. There might even be a buyer out there for Saab, too: Jaguar was worth something, after all. But the rest of this makes sense. The hardest cut to bear would be the Chrysler brand, but that's the fate of many a storied marque, to disappear.

I like this plan, since it's realistic about the future size of the US auto industry (two firms rather than three, for starters) and has a nonzero chance of actually being successful. Which might be a low bar to set during better times, but these days would count as something of an achievement.

Disclosure: No positions.

Comments

[ratsky:]

Your comments MIGHT have a bit more credibility if you didn't refer to "Chrysler" as "DCX": that was the stock symbol of the combined Daimler-Chrysler, which, as everyone else in the world seems to know, ceased to exist about 18 months ago! Chrysler doesn't even have a stock symbol, as it's privately held. Also, there are severe complications regarding severing relationships with overseas branches (you forgot about GM Australia, AKA Holden, and Opel). MOST of GM's new (and likely surviving lines of vehicles) are built on platforms from Saab/Opel, Holden, or Daewoo, INCLUDING the Chinese Buicks. The cost-spreading benefits of this would be largely lost if the design centers were sold off. Otherwise, the analysis is right on.

2008 Nov 18 12:05 PM

[Alanrich:]

All the legacy cost will be paid by the US government anyway, all the pensions from all the auto companies, Gm, Ford, Chrysler, will all file bankruptcy. The supplier network will be gone, their pensions will be passed on to the taxpayers throw in the cost of unemployment insurance, but don't worry. The autoworkers will be taught a lesson! But then so will thousands of engineers, accountants, lawyers, Doctors, if you can name the vocations they will be out of work. How about those professors at all the colleges teaching all those students who will no longer be able to go to school. Oh Yea! Borrow the money. That works swell, when there is no job to be had to pay back the loan.

2008 Nov 18 12:20 PM

[Philly Jim:]

Let the old die peacefully. I feel like we are trying to save our 118yr old grandfather with multiple surgeries which are doing only wasting money and prolonging the inevitable. U.S. car companies have been managed by out-of-touch old white men for too long.

Give new blood a chance. The government should be pumping money into successful small operations like Tesla Motors, not GM, Ford and Chrysler which are relics of our mismanaged past.

Let the old pigs die or FIRE all the management and let the Obama admin run them like they should have been run under Al Gore had he not had the election stolen from him.

2008 Nov 18 12:50 PM

[CoxyRedWhit...:]

Well said Alanrich,

To the rest of you; you people don't get it, if the Big 3 doesn't exist, neither does ANYTHING that you do or sell. Call the auto workers what you want (including me), but you sure took our money in the good times, you made your fortunes from us. We go, who needs you???? NO ONE!


On Nov 18 12:20 PM Alanrich wrote:

> All the legacy cost will be paid by the US government anyway, all
> the pensions from all the auto companies, Gm, Ford, Chrysler, will
> all file bankruptcy. The supplier network will be gone, their pensions
> will be passed on to the taxpayers throw in the cost of unemployment
> insurance, but don't worry. The autoworkers will be taught a lesson!
> But then so will thousands of engineers, accountants, lawyers, Doctors,
> if you can name the vocations they will be out of work. How about
> those professors at all the colleges teaching all those students
> who will no longer be able to go to school. Oh Yea! Borrow the money.
> That works swell, when there is no job to be had to pay back the
> loan.

2008 Nov 18 02:17 PM