A GM-Ford Combo?
How desperate are Detroit's carmakers getting? At a few recent meetings, General Motors (GM) executives have mused aloud about the prospects of a merger with rival Ford Motor (F), BusinessWeek has learned. But the idea went no further than some internal banter, according to sources briefed on one of the meetings. The prevailing view among GM executives in the discussion is that it would be a huge distraction at a time when management needs to focus on a turnaround. Plus, Ford has many similar problems.
Even if such a megamerger doesn't have any real traction, the very fact that anyone in GM's C-suite brought it up shows just how much peril America's carmakers face. Both companies are burning cash and considering their options as $4-a-gallon gas and the economic downturn create a near free fall in auto sales. "I don't think a merger is likely," says David Cole, chairman of the Center for Automotive Research. "But you'll see a lot of options considered if they think bigger problems will come by."
A megamerger isn't unthinkable. Decades ago, Ford nearly matched up with Fiat. GM flirted with the idea of buying Chrysler before Cerberus Capital Management got involved last year. In 2006, billionaire investor Kirk Kerkorian, then a GM shareholder, tried to get the auto giant into a tieup with Renault-Nissan (NSANY). The same year, Automotive News reported that GM President and Chief Operating Officer Frederick "Fritz" Henderson, who was the company's chief financial officer at the time, and Ford CFO Don Leclair met to discuss alliance and merger possibilities. While the Justice Dept. would never have approved a GM-Ford combo a few years ago, the picture is much different now that each are facing plunging market share.
Pros, Cons, and Complexity
A GM-Ford merger would have huge pros and cons. It would create a combined company with more than $350 billion in revenue. On the one hand, savings from overlap in massive overhead costs would save the combined entity billions. Its combined cash hoard of more than $50 billion could help the company survive what most analysts expect to be a year or two of weak sales. But a deal would also double down on the companies' existing problems, such as an excess of vehicle plants geared to build gas guzzlers, weak brands that need repair, and continued losses in North America. The company would have 12 brands altogether, selling overlapping lines of pickup trucks, SUVs, and bread-and-butter family cars.
Putting something like this together would be incredibly complex as well. There are powerful shareholder blocks on both sides, including the Ford family, to be considered. Kerkorian is now Ford's largest independent owner. And the United Auto Workers would want a say in what happens to all of those factory workers.
Not to mention, what would you call the company? General Ford Motors just doesn't have much of a ring to it.
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