Not Optimal, but GM-Chrysler Combo Best Alternative, Grant Thornton Report Says
By Michelle Krebs October 30, 2008A merger between General Motors and Chrysler, which appears imminent, is not optimal but may be the best alternative for both automakers in the current environment, says a report by a restructuring company.
"Chrysler, as we know, it will cease to exist very soon," said Kimberly Rodriguez, principal of Grant Thornton's automotive practice, which issued Thursday a report on the state of Chrysler and an analysis of a combined Chrysler and GM. "At this point, there are very few options available to either company."
Rodriquez believes it's in both companies' best interest to announce a decision that a merger will go forward by Election Day, with specifics to be hammered out later.
"We believe a transaction between GM and Chrysler is likely because it would be the most expedient way to protect cash and jobs at both companies," Rodriquez added. "If one or the other company were to fail, we would face a much bigger calamity - the collapse of the North American supply base and the potential endangerment of all three Detroit automakers and businesses that depend on them."
The report finds that under a GM/Chrysler transaction, Cerberus Capital Management would likely receive half of GMAC, GM's financing arm, and keep a percentage of the merged manufacturing entity. There is a strong possibility that the federal government and current company stakeholders will participate in a transaction, with the goal of completing a deal before the presidential election, the report said.
More specifically, Grant Thornton's Automotive Advisory experts note the following possible outcomes under a GM/Chrysler transaction:
+ Chrysler has 26 model offerings, of which Grant Thornton considers only seven to be core and likely to be retained (56 percent of sales). These include the Dodge Ram pickup truck, core Jeep-brand vehicles and the company's minivans.
+ Half of Chrysler's 14 existing manufacturing facilities likely would close. Three already have been announced for closure. A plant reduction of this magnitude would equate to about 12,000 production jobs lost plus another 12,000 administrative positions. Of this amount, a reduction in force of 5,000 has already been announced.
+ Hundreds of supplier companies would be impacted, which could result in the loss of an additional 50,000 jobs.
+ Dealer consolidation efforts will intensify. Chrysler and GM combined have 22,000 franchises -- half of the total in the United States. However, the combined market share of the merged companies would only be about one-third of today's significantly smaller market for new vehicles.
"Despite the significant number of families that will be impacted, the benefits of combining the two companies are both structural and strategic," Rodriguez said. "From an economic and political standpoint, the new company will likely be viewed as 'too big to fail.'"
Other benefits include:
+ GM is strong in international markets and is increasingly leveraging global vehicle architectures for scale and efficiency. It is a leader in plug-in hybrid technology with the Chevrolet Volt. To this product mix, Chrysler brings seven key models that have been recently redesigned or will be by 2010.
+ The new company will be a much more powerful force in the full-size pickup truck segment, displacing Ford as the truck leader.
+ The combined company will have more liquid assets, thanks to the cash on Chrysler's balance sheet.
+ Significant cost-reduction opportunities will be possible, especially in sales, marketing and administrative functions. Overlapping assets can be sold.
Rodriquez concludes, "On the whole, the combination of GM and Chrysler would certainly create yet another wild ride on the auto industry rollercoaster, where cash and platform position determine the winners and losers."
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"Despite the significant number of families that will be impacted, the benefits of combining the two companies are both structural and strategic," Rodriguez said. "From an economic and political standpoint, the new company will likely be viewed as 'too big to fail.'"
Well Mr. Rodriguez, my family will be impacted as will quite a few of my co-workers. Our factory is currently about 80% Chrysler related business. Not so much fun being road kill after 25 years of hard work. I hope the merger works, or there will be many more stories like this to come.
Oh, I forgot to comment on the "to big to fail" statement. It sounds reminiscent of the Titanic being unsinkable.
What happens to: *Mitsubishi, with no Galant, Endeavor, Outlander or Raider?
*Volkswagen's Town & Country-based Routan? Brooke Shields?
*The Chrysler Online Consumer Advisory Board? (did they come up with this?)
* The Lifetime Warranty Program?
It will be interesting, even exiting to watch this unfold at the Dealer Group level;
The Clash of the Titans. Oh, right. Nissan's not involved. Yet. Hang tough, Mr. Carlos Goshn-in three years, maybe five you should be able to buy GMChrysler, GMopar or whatever they call it for cents on the Dollar.
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