GM-Chrysler Merger Bad Idea

Let’s hope merger talks don’t resume. Almost no automotive OEM merger has worked in recent history.

John McElroy, Columnist

November 21, 2008

3 Min Read
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GM announced in early November it had suspended its effort to merge with Chrysler, and let’s hope that’s the end of it.

I don’t think I’ve ever heard a worse idea.

Unless GM and Cerberus Capital Management, which controls Chrysler, come up with a better rationale, I could see angry mobs taking to the streets before they ever let this kind of deal go through.

First off, if we’re to believe what Chrysler’s top officers have been telling us all year, the auto maker is in relatively good shape. At the end of June, they claimed Chrysler turned a $1.1 billion profit on an EBITDA basis (earnings before interest, taxes, depreciation and amortization).

They also reported the company had $11.7 billion in cash. Moreover, Chrysler bosses proclaimed they were meeting all of Cerberus’ financial targets and were “well ahead of plan.” So how come there’s a sudden crisis that necessitates merging with GM?

Yes, the U.S. market has fallen off a cliff since the end of June. But Chrysler hasn’t been hurt that badly. Check out its sales numbers: 98,000 units in July; 109,000 in August; 107,000 in September; and 94,000 in October.

That’s not much of a drop, and because the rest of the market declined even more, Chrysler actually picked up 2.5 points of market share between July and October! Over this time, its cash flow, on average, remained steady. Again, where’s the crisis?

And why would GM even contemplate such an idea? Everyone knows it has too many brands, too many dealers and too many platforms. Merging with Chrysler would add three brands and 3,500 dealers and a handful or more platforms.

If GM is struggling to manage the assets it already has, how could dumping more assets in its lap improve the situation?

Of course, the argument, if merger talk comes up again, will be that a marriage would reduce overcapacity, produce massive purchasing savings, provide giant economies of scale and create tremendous platform-sharing opportunities.

But that was the same argument for Daimler buying Chrysler. And it was the same argument for Ford buying Jaguar, Land Rover and Volvo. And for BMW buying Rover. And for GM buying Saab, as well as equity in Isuzu, Suzuki and Subaru. Relationships, I hasten to add, that went nowhere.

In other words, almost no automotive OEM merger and acquisition has worked in recent history. Nissan and Renault have forged a successful alliance, but they have not merged. They remain separate entities, with separate corporate cultures, while they share the same CEO.

So what makes anyone think a GM-Chrysler merger would suddenly reverse the tide of automotive history?

I hope we eventually learn this all was a scheme by Cerberus to force Chrysler onto GM, grab the rest of GMAC and skedaddle out of the auto industry. That’s a plan that actually makes a lot of sense. A merger does not.

John McElroy is editorial director of Blue Sky Productions and producer of “Autoline” for WTVS-Channel 56, Detroit.

About the Author(s)

John McElroy


John McElroy is the president of Blue Sky Productions, which produces “Autoline Daily” and “Autoline After Hours” on and the Autoline Network on YouTube. The podcast “The Industry” is available on most podcast platforms.

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