MERGER: DO, OR DIE?

GM and Chrysler: as one? How could that be? What would it mean?

The initial reports first hit the internet. GM and Chrysler were in exploratory talks. It was down played; explained that companies talk with each other all of the time to explore common goals and interests. But this one has not gone away, and it is actually accelerating.

The automobile sector has always been a cyclical industry. It ebbs and flows with the economic cycles. Manufacturers make billions in the best of times, and save cash to survive the worst of times. This economic barometer has traditionally been read by how many extra shifts are needed to keep up with demand, as opposed to how many auto employees are being laid off.

Domestic auto manufacturers have been hit twice as hard this time around. The inevitable economic downturn came, but they were caught with all of their eggs is one basket. Trucks and large SUVs brought them record profits. Domestics specialized in them. Then, gas prices escalated and they were all caught without a backup plan. Not only were consumers buying fewer vehicles, but they looked to the foreign fuel efficient choices when they bought anything at all.

Daimler was not happy with their purchase of Chrysler and sold the majority of its interest to the investment group, Cerberus, back in early 2007. Perfect timing! Daimler dodged the bullet that has hit all three domestic manufacturers straight in the eye.Ford, GM and Chrysler are all in dire straights. Not only did demand for their product cease, but the credit structure that sustained their livelihood collapsed as well, all part of the housing credit debacle. Now, with survival at stake, all three need money, and they need it now.

Rumors are flying. Ford, on the heels of already selling Aston Martin, Jaguar and Land Rover, is now rumored to be in talks to sell its one third stake of Mazda, either back to Mazda or to a group of Japanese companies. Chrysler’s Jeep brand might be sold to Renault. And now, GM and Chrysler are going to merge? The others make sense, but a GM/Chrysler merger is puzzling. What form would it take? What would it look like? What models would stay, and which would die? Or, would GM just swallow Chrysler and liquidate everything in sight to benefit from its $11.7 billion of cash and sell the remaining hardware?

Many stumbling blocks and questions remain in the way of a GM/Chrysler merger. What role will the unions play in allowing a merger to succeed? Also, Cerberus must buy the remaining 19.9% stake of Chrysler that Daimler still owns, in order to be free to merge. Would the government allow them to merge and own 36% of the US auto market? What would happen to the finance branch, GMAC, a hotly contested issue between GM and Chrysler? Cerberus already owns 50%, GM the other 50%. The investors that are Cerberus wants all of GMAC, and for good reason. When the economy turns around, its massive influence in providing credit is worth millions.

GM now has many interesting choices throughout its product lines (see previous blogs), but within GM, there is already too much redundancy (see my blog, “Power of Twins”). What would be the outcome of diluting the product line further with all of the various Chrysler models? Some would stay, many would not. If the merger became a reality, my crystal ball says: Jeep will remain, GMC will go, Chrysler will become an affordable luxury wing, Dodge will remain with several performance models, Viper will be sold to a customizing manufacturer, Hummer will be bought by an Arab or Russian company, Cadillac will continue to thrive as an icon, Chevrolet and Buick will blend together to become one, eliminating many models. In addition, there will be fewer dealerships, higher prices, many more plant closings, and thousands more jobs lost. GM will again dominate the domestic auto industry, and I will still prefer Ford, or a Japanese brand.


This story seems to change by the hour. Stay tuned to what surely will be a dramatic saga. It is hardly a merger made in heaven, but it appears to be a case of do or die. If the deal does go through, what would the logo look like and how would it fit on the grill of a Solstice?

UPDATE, 11/10/08
The latest rumor is that talks between GM and Cerberus are off, and discussions are proceeding with Hyundai.

UPDATE, 11/11/08
Now GM is out and Cerberus is talking to Hyundai instead. Meanwhile, GM's stock price dropped another 20+%, and a federal bailout is imminent. Stand-by!

HAVE YOU DRIVEN A FORD LATELY?

I have always been partial to Ford products. Maybe it is because of my initial exposure to my childhood friend’s father’s beautiful black 1957 Ford Thunderbird, or my sitting behind the wheel of a new Ford Galaxy 500 at the New York World’s Fair years ago, or because I was always envious of my neighbor’s 1968 Ford Mustang Mach III. For whatever reason, Ford products have always caught my attention.

My appreciation of Fords has not just been admiration from afar, I have owned three over the years. My first was a Thunderbird of my own, followed by a Taurus wagon for the family, and now our current Windstar van (see July’s blog). All have been well designed, serving with near flawless performance. The acronym, Fix Or Repair Daily has not been the case in my experience. While for a variety of reasons my last two cars have been from Honda and Toyota, I am now once again intrigued by Ford.

Despite the doom and gloom of today’s economy, Ford appears to be working towards a position of strength. Its recent sale of Jaguar and Range Rover gave them the needed cash to keep running. Now it is up to their product line to return Ford to profitability, and that is where the fun begins.

My renewed interest in Ford began with the stunning redesign of the Mustang in 2005, rejuvenating the aging brand. Recapturing the style of its best incarnation, the 1968 Mustang, sales and awards quickly followed. It was impressive enough that I almost bought one. Now in its 5th year, my head still turns every time I see one drive by. Fans (and I) anxiously await its next generation due as a 2010.

Ford’s rebirth continued with the launch of the Ford Freestyle in 2005, then the Fusion in 2006.
The Fusion was the first to feature Ford’s now signature sparkling chrome three bar grill. With a sharp looking design, this Accord fighter attracted attention, and sales, immediately. The owners I have asked love them. Ford’s crossover entry quickly followed in 2007 with the Edge; plenty of room, excellent handling, and another design success. A friend of mine says that it’s the best vehicle he has had in years. Now for Ford, it is the much anticipated launch of their new people mover, the Ford Flex.
It is not a mini-van or a crossover, but seats 7 and drives like a car. Print photos do not do it justice. In person, the Flex is impressive. While I have not driven one yet, the reviews in the trades are glowing. NOTE: The Flex was just placed on Consumer Reports' Top 5 list of crossover SUV's.

Ford faced a public relations nightmare following the Explorer rollover/tire debacle a decade ago. While their F150 truck retained its #1 position (until recently), the consumer’s perception of Ford’s safety and reliability was severely tarnished. That perception is now changing. Many of Ford products proudly wear Five Star safety ratings in most categories. JD Power gave the Mustang their endorsement with an excellent high initial quality rating. In response to high gas prices and a pleasing redesign, the Ford Focus is now flying off of dealers’ lots, selling for less money than the Honda Civic. The quality is excellent. Still have doubts about Ford? My company’s fleet of Ford Escapes has been indestructible. One Escape was retired recently after 7 years old and 220,000 miles with no complaints throughout its proud service.

Ford now offers some genuinely interesting choices in its current line-up. With safety and reliability in its pocket, and deals available in this tough economy, this domestic brand is again worth serious consideration. I will take a Flex for my family and a deep red Mustang GT for me (a man can dream can’t he?). Have you driven a Ford lately? I hope to do so again soon.

UPDATE, 10/24/08: Consumer Reports has just released its 2008 Car Reliability Survey and it places most models of all three Ford brands (Ford, Lincoln and Mercury) ahead of all other domestic manufacturers. Based on Consumer Reports’ Readers’ Survey, almost all models received “average or better” reliability results, placing them on the same playing field as its Japanese competitors.

UPDATE, 1/7/09: Consumer Reports' chief car tester, David Champion, has published the following quote: "Ford has been doing a lot right on reliability for the past five years. It's not immediately apparent that the Ford Fusion would be more reliable than the Toyota Camry, but it is, and the Fusion is one of the more reliable family sedans on the market."