The Case Against a GM-Chrysler Merger

General Motors executives and some Chrysler executives seem to want the two companies to merge. Though they are publicly mumm, privately reporters have gotten earfuls from the promoters boosting the idea of how successful it would be. I can’t buy it. Here’s why:

1. General Motors has been in a near constant state of restructuring since 1993. Think of that. Fifteen years of restructuring, write-downs, streamlining, plant closures, downsizing, buyouts, etc. It’s exhausting covering this company. From time to time, GM has seen a bit of daylight by earning some fleeting profit. But then the company falls prey to the next cyclical downturn, national event, etc. For the most part, the profits came when GM could crank out SUVs and pickups when gas prices were cheap, housing values were over-inflated, leading consumers to treat their homes like ATM machines. It didn’t take a lot of brains or savvy to make money this way. But these times, we think, are over.

It is the memory of those fleeting bursts of sunshine, I believe, that leads these GM executives to want to acquire Chrysler’s 10%-11% of the auto market, and get back to the broad restructuring it would take to rationalize the two companies. But if these same executives were much good at actual managing, why have they managed GM into the ground for fifteen years?

2. There is an idea that maybe the U.S. government will give the Big Three automakers an additional $25 billion in loans next year to survive the Recession. To get it, the automakers will need the cooperation of the next President and Rep. John Dingell, the automakers’ own Congressman from Detroit who is chairman of the House Energy and Commerce Committee. Just why would Dingell and either Obama or McCain support a strategy that would cut tens of thousands of jobs from an already economically fragile region of the country—Michigan, Wisconsin, Missouri, Indiana? By the way, the UAW hates this plan, and GM can’t do much without the union signing on.

3. The strategy seems to hinge on GM keeping Jeep, Chrysler’s minivan business, perhaps the Chrysler 300, Dodge Trucks, and punting the rest of the company and brands. Perhaps the Chinese automakers will want all or parts of Chrysler and Dodge cars? While I’m fairly sure the market would not miss Dodge Avengers and Aspens, or even the Dodge Viper or Chrysler PT Cruiser, I’d wonder if the exodus of customers from Dodge trucks wouldn’t out-run GM’s ability to restructure the whole company. “Why buy Chryslers if they are really GMs. If I wanted GM, I’d have bought a GM.”

4. The opportunity cost is frighteningly high. This is a time when innovation is needed more than ever to meet stricter fuel economy regulations. Chrysler doesn’t have any technology GM needs. Why doesn’t GM simply focus on restructuring GM, keep its focus on innovating, and take the additional loan money that is sure to be available next year. GM managers will spend 20-hour days trying to figure out how to shrink Chrysler fast enough for the whole mess pay off instead of making GM stronger and more innovative. It wants the $10 billon in cash Chrysler is reportedly sitting on? Take the Fed loans next year instead.

5. Could it be that GM is also thinking of this as a pre-emptive move? Keep Dodge Trucks and terrific minivans out of the hands of Nissan or the Chinese? Give me a break. GM management hasn’t earned the right to be that smug. There is nothing that would come from Chrysler, except minivans, that GM doesn’t already have. GM says it wants the Chrysler 300? For what? To sell as a Buick? Or in Buick-Pontiac-GMC dealerships as a Chrysler?

6. Why merge to save billions? Ford and GM saved hundreds of million by developing a six-speed transmission together. Both companies, I am told are deliriously happy with the outcome of the cooperation on what amounts to a commodity part. Analysts who know about these things say that GM and Ford, for example, could save billions upon billions more by entering into more of these global “co-opetition” arrangements developing engines and transmissions. Add other stuff like wiring harnesses, headliners, etc. that nobody views as a competitive advantage, and the savings are enormous.

7. Ford rebuffed GM in late summer about merger. Take that as a sign that maybe the idea stinks. Too, when was the last time you saw Toyota or Honda sniffing around to make an acquisition? Try, never. Ford executives say they are focused on integrating Ford globally, and making the company it has as efficient as possible. The sanity of this approach is crystal clear.

8. Just how many botched automaker mergers do you have to see before you get the message that these things don’t work very well. DaimlerChrysler? BMW-Rover? Ford’s buy of Jaguar and Land Rover? I know. I can hear it now. “We won’t make those mistakes.”

9. Good luck with the dealer consolidation. You are going to buy Chrysler, take the $10 billion it has in cash, and start paying Chrysler and GM dealers to go out of business? What kind of return-on-investment is that?

10. I’m sure there are reams of paper being generated that shows why this deal pencils out. Take all that paper and use it to start a fire. It’s going to be a cold winter.