Daniel Howes: GM-Chrysler deal would be frightful

Daniel Howes: GM-Chrysler deal would be frightful
http://www.detnews.com/apps/pbcs.dll/article?AID=/20070219/AUTO02/702190345/1148/AUTO01

A tie-up between the two longtime rivals would be a tough pill for Metro
Detroit.

A ll this chatter about General Motors Corp. potentially buying the
beleaguered Chrysler Group from its German masters has me thinking about
Carl Valdiserri, an old steel guy from Dearborn.
With his beloved Rouge Industries Inc. in bankruptcy back in 2003, he spent
many days and nights looking for someone, anyone, to buy the assets Henry
Ford first established at his mighty Rouge. But no one, least of all any
American steelmaker, was interested -- except to buy them to eliminate a
competitor.

"Every offer I know of shuts all or part of the place down," he told me
then, as Russia's No. 2 steelmaker, OAO Severstal, was in the process of
acquiring Rouge. "It's a damn shame we have to go foreign to get investment
commitment to save these American jobs. We couldn't get a $4 loan to keep
this business running. It's been written off."

The folks at Chrysler, gutting through another restructuring as their
company is in play, probably can feel his pain. The signals coming from the
German mother ship suggest they've been written off, too. Worse, they're
suggesting Detroit's No. 3 automaker should be acquired by its No. 1
crosstown rival.

That would be a disaster for this town, for the United Auto Workers, for
this state and for its largest automaker's efforts to stay focused and
methodically fix its own problems.

A bad deal for Motown

Michigan's numbing job losses likely would mount, not slow, as the new
entity rationalized operations to keep up with nimbler rivals. Product
lines, if not entire brands, would be killed, with all that portends for
people and long-suffering dealers. More tax-generating real estate likely
would stand empty.

In a bid for market share, GM would get saddled with an estimated $18
billion in new health care liabilities from Chrysler, after spending the
past two years trying to reduce its own crushing liabilities. GM would get
more dealers when it needs less; more plant capacity when it needs less;
more North American capability in engineering it arguably doesn't need.

The global industry's most successful automakers -- BMW, Toyota and Honda --
prosper largely because they have grown organically, not through acquisition
and financial engineering. They have more simplified operating systems in
manufacturing and product development. They have fewer brands, and the ones
they have are more clearly defined in the marketplace.

It would be unwise to assume there won't be any kind of tie-up between GM
and a Chrysler looking for its moorings. High-level sources told The Detroit
News the two companies are in serious, ongoing discussions that started in
December.

There's also talk of a joint project for GM to build Chrysler a full-size
SUV based on the Suburban or to build a subcompact at its Daewoo unit in
South Korea. Just asking, but why would the leader in both those segments --
the Suburban and Chevy Aveo -- want to build rival vehicles to compete
against itself?

Follow the money trail

Which speaks, at some level, to the stunned response to the original report
last week from Germany's Manager magazine saying GM was in talks to buy
Chrysler from DaimlerChrysler AG. Seems to me the idea shows a superficial
understanding of the core business issues facing Detroit's automakers --
but, then, I suspect that's beside the point.

The news reports and DaimlerChrysler's announcement that all options are
open for Chrysler, including an outright sale, boosted the company's market
value by $10 billion over five days. Shares closed Friday at $73.33, up 15.2
percent since last Monday.

That means two things: First, the market's jubilation at a potential
Chrysler spin-off increases the prospects that it could happen because, as
critics gunning to jettison Chrysler likely will point out, "the market"
says it should happen.

And, second, DaimlerChrysler's top executives and shareholders, most of whom
are outside the United States, are much richer today than they were a week
ago.