What GM and Chrysler should be discussing

A Blue Light Special on Chrysler?

What GM and Chrysler should be discussing
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NEW YORK (Fortune) -- Of course, the idea of GM (Charts) buying Chrysler is
preposterous. GM's biggest problem is overcapacity, and Chrysler is full of
things that GM already has too much of: assembly plants, workers, retirees,
car brands, car models, and dealers.

For more than a decade, GM has been trying to slim down; acquiring Chrysler
would only fatten it up again. If that isn't reason enough, consider this:
Try to think of one automotive takeover that has actually worked. There
haven't been any successful ones in modern memory but there have been plenty
of failures: Renault-American Motors; Ford-Jaguar; Studebaker-Packard. These
things always look good on paper but then collapse in the execution.

Chrysler's Valentine's Day massacre
There is a reason why Carlos Ghosn didn't try to merge Renault and Nissan --
he knew it wasn't worth the effort. The idea that GM would want to buy
Chrysler's sales volume so that it could remain Number One in the world is
hilariously dumb. GM needs to get stronger, not bigger.

But if Chrysler were to be broken up, and all its parts chucked into the
bargain bin, that's a different story. Picking around the pieces, GM could
find some attractive deals.

Here are a few:

The Jeep Brand. Although Chrysler has done its best to dilute the value of
this American icon by building vehicles that are challenged in quality and
functionality, the Jeep name still resonates with buyers. GM hopes that
Hummer can some day challenge it, but in-your-face Hummer represents only a
subset of the whole off-roading culture that Jeep can lay claim to. Taking
on Jeep, and leaving Hummer to the X-games people, would be a smart move.

Diesel engines. Modern diesel engines offer one possible solution to the
alternative energy problem. American automakers have been slow to jump
aboard because they believe that consumers hate them. But diesels are no
longer smoky and smelly, and they provide excellent mileage. Chrysler has
access to Daimler's diesel technology, which is top-drawer. GM is so far
behind the curve that it entered into a disastrous deal with Fiat a couple
of years ago largely to tap into its diesel expertise.

The Dakota midsize pickup. GM dropped the ball when it redesigned its small
pickups, the Chevy Colorado and GMC Canyon, and didn't leave any room in the
engine bay for a six-cylinder engine. The Dakota is a sturdy and successful
truck that has got room to grow if customers start tiring of their
fuel-thirsty V-8 powered fullsize trucks.

10 Cars worth waiting for
The Chrysler Technology Center. The gleaming black structure off I-75 north
of Detroit was one of Lee Iacocca's better ideas. He consolidated all of
Chrysler's far-flung engineering and research facilities under one modern
roof and used the new building as a recruiting tool. GM could do the same
thing. Its engineering complex in Warren, Michigan, with its flat-roofed,
Saarinen-designed buildings made sense back when GM controlled 50% of the
U.S. market. Today it looks dated and ragged around the edges. GM could sell
the land for a golf course or housing development and move into smarter
facilities up the road.

People. Although GM has a solid team of executives, it could cherry-pick
from the Chrysler roster. Would Chrysler COO Eric Ridenour be a worthy
successor to 75-year-old GM vice chairman Bob Lutz? Might not some young
Chrysler designers add flair to GM's already-improving staff? And how about
some of that sharp Chrysler marketing talent to rejuvenate GM's efforts?

So, picking and choosing, it is possible to find some jewels in the Chrysler
wreckage that would benefit GM. But all this feels like arguing about the
number of angels that can fit on the head of a pin. The U.S. auto industry
is in a period of consolidation that is probably only about 50% complete and
new entrants will continue to whittle away at the market share held by
American automakers.

By the end of the decade, cars made in India and China will likely start
arriving in the U.S. and there is no end in sight. If GM expects to survive
this influx, it will have to continue to make better use of its global
resources and not be distracted by ill-conceived mergers.

As for Chrysler, it would be better off staying attached to Daimler. If
anyone knows how to fix Chrysler, it is DaimlerChrysler (Charts) chairman
Dieter Zetsche. And so far, Daimler's investment in Chrysler looks cheap
compared to its other fiascos involving Mitsubishi and Smart -- and has a
lot more upside.

 

You're right. History is full of failed automotive mergers.

All this talk about GM buying Chrysler has me concerned. If GM were to
buy Chrysler, how long would GM be required to provide parts for
Chrysler vehicles?

Would be be left *high and dry* after the period agreed to in the
purchase agreement expires?

When I look at the 4 Door Sedan lineup from GM and Ford, there is not
anything that appeals to me. The Malibu and Impala come close, but
that's about it.

I still believe that Chrysler still makes the best Minivan of the big
three. I wonder what GM would do to the vans.

-KM

 

Minivans are dying. I think GM woul dleave the minivans alone though. This
was Chrysler's strong point all along.

I just recently bought a 2004 Sebring instead of a 2005 Malibu. I should
have bought the 2007 civic 4 door as It's a made in Canada car. But I
needed truck and rear seat room and American cars are dirt cheap used. When
I was in the Chrysler show room nothing appealed to me in their new cars
except the the Nitro and Small Jeep variant.

 

Probably better or equal to any other van.

Not upgrade them for so long the buyers go elsewhere. >

 

I believe D paid about 36 B for Chrysler.
Current Chrysler value 5 B.
Chrysler's net cost to D 31 B.

 

That's about par for an auto company merger. Here's where we find out how
smart Daimler management is. If they sell right now, it won't be very
smart.

On the other hand, we already know how smart Daimler stockholders are. The
stock went up about 5% just on the rumor that Chrysler was to be given away.

 

I believe Chrysler stock went up as well.
Investors like action, either way!