Big Three Automakers' Desperation for Survival

Struggling to survive amid declining sales, slowing global economy and an unprecedented credit crunch, General Motors (GM), the US’ largest automaker has initiated talks of a potential merger with Chrysler (DCX), the third largest. These overtures by GM come after the company’s proposal to combine with the second biggest automaker – Ford Motor Co. (F) – was rejected by the latter last month.

As reported on CNN’s financial website, "A tie-up between the automotive giants would be historic for the industry and solidify GM's position as the global sales leader, which it has been in danger of losing to Toyota Motor Corp. (TM)”

However, we believe that in merging these firms, the problems might in fact magnify rather than disappear. It’s a case of combining two failing firms in the hopes of creating one healthy one, which does not give an impression of being a win-win deal for both. In fact, managerial attention that needs to be focussed towards making the businesses healthy on a standalone basis will now be diverted to a complicated integration.

The problems for US auto companies like GM, Chrysler and Ford are not new. They have been burdened with high cost operations and a shrinking market for fuel guzzling vehicles for many years now.

 

Comments

[Joey:]

How to Fix GM – Advice from someone who worked there.
1) Sell All of GMAC and the Insurance Business (Ditech)
2) Cut down from five regional offices to two. One in Atlanta (east of the Mississippi River)and one in LA (west of Mississippi River). That means Chicago, New York, and Dallas are closed. With about 250 people working in each location (750 total) at an average of $100,000 each, that is a yearly savings of $75 million. Operation cost (rent, equipment, etc.) at the three locations will save another $1.8 million. Benefits for the 750 employees will save another (at $20,000 each) another $15 million.
3) Next, there is an average of three offices per state (local offices in cities across the country), if we close them, that is another $3 million in office space.
4) Next, the District Managers work out of their house and the Zone Managers (or whatever term is given to them), could be let go. They make around $150,000 a year and there are about 75 of them. Again, a savings of $11.25 million. With benefits, a total of $12.75 million in savings.
5) Next, cut around 150 jobs at the Detroit GM Headquarters. A savings of around $18 million with benefits.
6) Next, cut Buick down to two cars (Enclave and Lucerne), cut Pontiac to one (G6), cut GMC to two (Yukon and Sierra), cut Saturn to one (Vue) – and put all cars to a new umbrella called “United GM”. This will save GM billions. Also cut back on two Chevy models and two Cadillac models.
7) Next, cut advertising in November, December, January, February, March, April, and May (with the exception of auto show advertising for a three week period during the show and its incentives). This will save GM around $1.4 billion.

2008 Oct 13 10:47 AM

[Paul Killinger:]

So Ford cut off talks with GM about a merger, did they? That should tell us something. It proves GM is in more trouble than previously thought, and Ford has better sense than I thought they did!

And as the previous poster suggests, GM hasn't even scratched the surface yet on the many things they could do to cut costs. It's business as usual in Detroit.

2008 Oct 13 11:18 AM

[cynnatalie2000:]

Detroit's biggest problem is the UAW and the second problem is excess capacity. The third problem is lack of funds for product development.

A merger helps on both fronts.

It is easier to confront the UAW when a single company is dealing with it and a merger can help in planning the shedding of excess capacity.

The funds available for development will increase with a merger in that there would be no need for all three to duplicate the same research.

2008 Oct 13 11:27 AM

[sumosama:]

minor point....DCX is not the symbol for Chrysler. It is privately held by Cerberus.

2008 Oct 14 01:49 PM