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Posted by Joe Cimoch on Friday, October 31, 2008 at 17:58:56 :
In Reply to: GM/Chrysler, Interesting Read posted by Paul ( in NY) on Thursday, October 30, 2008 at 21:40:53 :
Joann Muller, Forbes Magazine
Detroit -
When Toyota veteran James Press joined Chrysler as vice chairman, he bragged Chrysler had "strong bones" that would form the foundation for growth. A year later, General Motors is picking over those bones for whatever meat is left.
It's slim pickings. Only seven of the 26 models in Chrysler's lineup are likely to be retained if General Motors merges with Chrysler, predicts consulting firm Grant Thornton LLC. They are the Chrysler Town & Country and Dodge Caravan minivans; Jeep Grand Cherokee and Wrangler SUVs; Chrysler 300 and Dodge Charger sedans; and the Dodge Ram pickup. Together, those core models account for 56% of Chrysler's sales.
"Chrysler as we know it will cease to exist very soon," says Kimberly Rodriguez, principal of Grant Thornton's automotive practice, who predicted a deal could happen before the Nov. 4 election. "At this point, there are very few options available to either company."
If a merger were to occur, up to half of Chrysler's 14 assembly plants would close, resulting in 24,000 hourly and administrative job cuts, Grant Thornton says. (About 5,000 cuts have already been announced.) In all, the company says 30,000 to 40,000 of Chrysler's 67,000 existing jobs would be eliminated.
Yet while a combination between the two struggling automakers is not "optimal," it is better than the alternative, she says. "A bankruptcy for either company grinds the automotive industry to a halt," says Rodriguez. "It shuts down production, and the amount of damage grows exponentially." Both companies have said bankruptcy is not an option. Chrysler declined to comment on Rodriguez's report, calling it "speculation."
Still, a GM-Chrysler deal would put hundreds of fragile parts suppliers at risk because of the likely production cuts, she says. "The suppliers have been hit by the financing crisis and the raw-materials crisis and volumes falling off. This will be a final blow to many suppliers," she says, estimating another 50,000 job losses outside of Chrysler.
One of the hidden costs of a merger, she adds, is the billions that GM-Chrysler and other automakers will have to spend to prop up suppliers who will no longer be viable just to ensure the delivery of necessary parts.
There are some benefits to a combined GM-Chrysler, however. By adding the Dodge Ram, GM would be in a stronger position to compete against Ford Motor in full-size pickups. It would gain liquidity, thanks to the $11 billion in cash on Chrysler's balance sheet. Also, the two companies could reduce costs by $6 billion to $10 billion by eliminating overlapping staffs, especially in sales, marketing and administration. By buying Chrysler, GM also prevents its fairly successful minivan and pickup business from falling into a competitor's hands.
Rodriguez believes a deal is likely soon, perhaps with federal assistance if the government believes GM is too big to fail. "There is no new money or white knight or equity fund that says I think this is a really good idea. There's not much time. We're running out of runway."
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