Struggling to survive amid declining sales, slowing global economy and an unprecedented credit crunch, General Motors (NYSE: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. (NYSE: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. (NYSE: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.