Chrysler and GM talk merger- Dino-incest, or good move?

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The chances are currently considered 50-50 of a merger.

Realistically, a “rationalization" (aka rendering plant routine) of the US car industry can either be done voluntarily or by a coroner. Too many bad moves in the ‘ol tap dance routine have skipped an era, and whatever happens next, particularly in the current economy, has to work.

The New York Times:

A merger would be a historic event, with two of the most iconic names in American industry coming together to survive in an increasingly difficult environment. Both have roots dating back decades in Detroit and, with Ford, long dominated the auto industry — until Japanese and other foreign car makers began making inroads into the American market.

The auto industry is being pummeled from all sides — by high gas prices that have soured consumers on profitable S.U.V.’s, by a softening economy that has scared shoppers away from showrooms, and by tight credit that is making it difficult for willing buyers to obtain loans. Both G.M. and Chrysler have been struggling with product lineups that are out of sync with consumer demand for smaller, more fuel-efficient cars.

In other words, the whole market is now an entirely different thing, the society has changed beyond recognition, the global market has created a completely different paradigm…

And that’s mysteriously had some effect on the car industry.

About bloody time something did.

No amount of economics, financial news, or a generation of environmental concerns did. The SU Brontosauri have been clogging the roads for long enough to make a mockery of any concept of energy efficiency or domestic budgetary sanity.

There will one day be a treatise on the subject of the self-fossilization of American industry, and the car industry will have a proud place among the main examples of pre-Neolithic concepts. This is where the sheer obsolescence of ideas which were dead in the 70s finally has to go. Dick Van Dyke has retired. Beaver’s grown up, and the roads have been a form of DIY embalming for a while now.

Good luck to GM and Chrysler if they can resuscitate themselves. God won’t be able to help any corporation which persists in the failed strategies which have been disemboweling American industry. The car industry is in roughly the same position as the finance industry in some ways, poisoned by a culture which just didn’t notice the new millennium, or any of the risks it posed to itself with its insularity.

Owners of Chrysler, private equity group Cerberus Capital Management, are also talking to Nissan and Renault.

Obviously something is about to happen. The issue here is the question of which is likely to bring better returns, but strategically, there’s an issue of distribution and market share. The snowball gets bigger if it starts bigger, at least in theory. Actually a three way merger of Nissan, Renault and Chrysler would be an interesting possibility.

GM’s position isn’t terrific:

Speculation about a possible bankruptcy filing by G.M. has mounted in recent weeks because of the automaker’s dwindling cash reserves. The automaker had $21 billion in cash on hand at the end of the second quarter, but it was burning through more than $1 billion a month

The credit rating firm Standard & Poor’s put G.M. on negative credit watch on Thursday.
But G.M. has said it is confident that it can increase its liquidity, and emphasized in a statement released Thursday that it was not considering a bankruptcy filing.

The mathematics are obvious, but the alternative options to a merger are anti-growth. Downsizing goes so far, until there’s no company, and GM is a huge distributor. It can only shrink so much. GM needs to grow to recover, because sales volumes have been working against it for so long, and to be competitive means more market share, not less from a shrunken base.

With any luck, a merger, or some version of a merger, will work.

Trying to float in an economy short of liquidity isn’t a very enticing idea, and a bit of corporate load spreading could make Chrysler/GM a good move.

For those in the industry that need to know these things, you can recognize paleontologists by their smiles…and the way they circle overhead...auditing...