Ford CEO Alan Mulally goes to bed every night and prays that GM does a deal for Chrysler. In the morning, Big Al digests his corporate PR brief looking for missives from automotive and Wall Street scribes praising the combination of dumb and dumber. Every afternoon, he reviews Ford’s daily sales figures and wonders when the pain will stop. And soon, he’ll be rewarded with news he wants: his two Motown rivals will be bedding down together. “Thank you God, baby Jesus, and Fritz Henderson,” he’ll whisper to his wife. “Redemption is mine.”
In whatever form it eventually takes, the combination of GM and Chrysler will make Mulally’s job leading Ford out of the wilderness of despair that much easier. If only for one reason (among many): the combination of the first and third North American domestic automakers won’t lead to additive sales of two weaklings together. Ford will gain sales at the expense of its sole remaining domestic rival. And in this market, every incremental unit sold translates into good news, no matter how bad sales stink.
Strange to say, the idea of a GM – Chrysler merger predates the recent carpocalypse. GM’s President and COO Fritz Henderson has been pushing for a combination of the two companies since Daimler first offered it for sale. Fritz reckoned then, and now, that GM will gain additional revenues from selling vehicles with no incremental costs. He’ll merely gut Chrysler’s departments which overlap with those of GM (as in all of them) and reap the savings. Kind of the same as getting more units of production out of a fixed asset base; it does wonders for profits and cash generation. So yes, even with three additional brands, overlapping products (save for minivans and the Jeep Wrangler), little downside exists. The deal pencils. We can do this and save the Goodship GM.
Whether intentionally or not, Fritz has forgotten that any synergies from a Chrysler merger will take years to manifest, if ever. Laying off the bulk of Chrysler’s white collar workforce can’t be done immediately. Those folks at Chrysler know how to operate its systems and support the products and dealers. It might take a year or more to migrate ChryCo ops to GM protocols. In the meantime, parallel systems will have to be maintained. And then it’ll cost a bomb to integrate. So no real savings there from the get-go.
And what about Chrysler’s current product line? How will GM save money there when it controls Chrysler? Are we going to see more rebadged products throughout all eleven brands (or ten if Hummer goes away)? Will GM stores sell Chrysler minivans? How much confusion can exist within the combined brand structure? And how does GM expect to shoehorn GM’s powertrains and parts into existing Chrysler products? Oh wait, we’ll say we can do this but in reality we can’t. So no savings there either.
So we’ll save money on advertising, marketing and PR! Why have two departments at both companies when we can condense them into one? Sure, we’ll buy national advertising promoting our new “Financing Available for Everyone” program at eleven different brands! Maybe we can buy office suppliers cheaper? Oh, and now that we’re so large, we can really browbeat parts suppliers for even more savings! And since Chrysler has little engineering staff left anyways, we’ll get our engineers to work on their products. Except they won’t; talk about a dead end for one’s career within GM!
So as GM absorbs Chrysler– and looks for cost savings, synergies, or other things for a player to be named later– the company will experience an organizational meltdown. Chrysler for certain will go into a tailspin, while GM’s bureaucracy leaps at the opportunity to enlarge fiefdoms and impose its will on the remaining and hapless Chrysler people.
But it also means that the total sales for the combined companies will fall. And that’s the window of opportunity for Ford, its only domestic competitor, currently mired in an even deeper trench of confusion and lack of focus. GM’s capabilities to move even faster on a product rationalization plan and cost savings are now hampered by internal infighting over turf control. No one inside of the new GM can make decisions within the new structure– an already big mess just became even bigger!
Meanwhile, Ford continues on its steady path of resurrecting The Blue Oval. Nothing radical; just continuing its focus on product and marketing. Build the best new truck for real users. Bring over superbly-crafted European designs for the small car market to compete with the Asians. Rethink the SUV/CUV. Work on finding cost savings that don’t cheapen the product. Eliminate internal fiefdoms and make it one Ford. Basic blocking and tackling.
If Ford’s corporate cash can last and keep the lights on long enough, domestic car buyers and maybe even some import buyers will consider Ford for the first time. They’ve got everything they need except time. Meanwhile, it sure helps when your biggest competitor decides to do something really dumb.
Ford is going to make it. GM and Cry-sler will not. The real problem is going to be the UAW, who will not take one for any team. Just try and lay off 100K workers and see what happens. Strike for sure, since they don’t know what else to do.
This is an excellent editorial, Ken. And I agree with your points about trouble with merging GM and Chrysler. In particular, nobody in the MSM seems to have picked up on the fact that if there are benefits to be had from merging, it won’t come for a long while.
Great commentary.
I think Mulally will need a lot of help from Baby Jesus to pull that one out. Building cars is a good thing, but dragging Ford clan into XXI century is totally different ball game. Nasser was much more established executive within auto industry then Mulally and he achieved decent results with cars and trucks. The problem with Ford is not automotive, but hereditary: to much inbreeding.
I agree with the editorial, but you write this sentence: “And that’s the window of opportunity for Ford, its only domestic competitor, currently mired in an even deeper trench of confusion and lack of focus.”
And then you pretty much prove it incorrect with the remainder of your editorial. Ford is the only one that IS focused and has a feasible plan for remaking itself.
You forgot about the nightmare that happens in between when Mulally says his bedtime prayers and then checks the news in the morning. The one where GM takes over Chrysler, files for Chapter 11, hacks and slashes, and rises from the ashes with only the Chevrolet, Cadillac, and Jeep brands remaining yet tightly focused at their respective markets.
GM’s trying to cement it’s “too big to fail” policy.
By swallowing up Chrysler, they become too important politically for Obama (Assuming he wins) to let them go down. McCain would have trouble allowing them to fail against a Democrat-controlled Congress.
The stock’s up 38% from the bottom.
Rick, you Magnificent Bastard!
What’s the general opinion here on Kirk Kerk bailing out?
indi:
I’d say “Preserving What’s Left Of Your Ass”
Zarba, I think we are too close to the election now for GM or any of the Michigan’s politicians to change the outcome. Michigan has chosen Obama by a fairly decent margin according to polls. McCain has given up in Michigan. So I am not sure how GM, Ford or Chrysler plans to swindle any more money or promises out of the government or Obama before the election.
I am not saying it wont happen, but Obama no longer needs to appease Detroit to carry Michigan. Every day that passes further solidifies Obama’s victory in Michigan which I assume is why the sense of urgency for the Merger exists. The threat of the Big Three staging some sort of Pro McCain rally in the next two weeks is really the only ammunition they have to coerce a government aided deal.
Great editorial Ken . Your analysis that it takes time to get the cost save is right on the button.
But I wonder if there’s another problem being ignored although you touched on it – the people in Chrysler who know how to operate their systems – run the plants, take dealer orders etc. What makes anyone think that the good ones (and there must be some) are going to hang around a minute longer than they have to – as soon as they get an offer they’re gone. After all, their careers in the new GM/ChryCo are non-existent, especially after the ‘synergies’ are realised (like maybe never). And if the key people aren’t there, how can the ChryCo operation continue to function. Probably the only thing stopping them are ties to their home state and from what I read, Mi’s in a bad way jobwise.
Unless maybe, GM has a cunning plan ….. (But then GMs had plans for every season for the last N years and we can how successful they’ve been).
It’s a crying shame what’s happening….. even 3 years ago I’d never have believed it.
@Dave
The smart Chrysler employees have already been leaving or are now preparing to do so. The ones that remain will likely need to be incentivized by some bonus offered at the close of Chrysler’s doors. They will likely not be the top 20% of the employees and GM will have to hobble along with B and C players supporting Chrysler’s carcass.
Yet another example of how GM will likely slide it’s corporate schwantz into a chicken crossing the road.
For the reasons cited above by Ken and many others, a GM-Chrysler union just doesn’t make any sense to me. Unless… such a deal involves an investment in GM by Cerberus or some kind of agreement that will result in access to additional cash for GM. Otherwise, as Ken says, the syngeries will take too long to realize, while the last thing GM needs in the short term is to spend additional money and gain more brands. I still say Chrysler is likely to end up with Renault-Nissan… or an Indian or Chinese company.
Jeeze… GM has become a black hole. Chrysler, Delco, etc. It seems determined to suck in the entire US automotive industry with it before it dies.
Radimus – You’re right, if GM does go BK and rationalizes its brand lineup and fixes its balance sheet, Ford will have to do the same. In fact, if you read some recent 10K’s from Ford, the company admits this truism (see Risk Factors).
But the current thinking is that a combined GM will get a government bailout of some kind. If this is the case, Ford will also get one too. But GM requires much more brand sculpting – and hence its market share will fall no matter what. So Ford still wins.
autonut: “The problem with Ford is not automotive, but hereditary: too much inbreeding.”
The conventional wisdom is that Old Henry’s descendants will never allow Chapter 11 because they’d lose control over the company. But what if–
— the choice becomes either C11 or C7 (liquidation, with the stockholders probably getting nothing); or
— the corporate structure is or could be that the company in which the Fords exercise control is actually a holding company for Ford North America and the overseas subsidiaries?
In the first scenario, even if C11 results in the Fords having to exchange their special stock for ordinary shares, they’d still have influence if not control–and still have something of value.
In the second scenario, the “Ford NA” bankruptcy wouldn’t affect the holding company. (Note: I don’t know if this is fanciful or feasible; maybe somebody familiar with BK law and Ford’s corporate structure can help us.)
gamper: “Obama no longer needs to appease Detroit to carry Michigan”
True. Michigan’s woes, self-inflicted and otherwise, are good for Obama. But in some states, such as Missouri which is a swing state, a little GM/UAW pandering might help. Actually, it doesn’t make any real difference what Obama promises. He’ll have a friendly Congress that’ll be so union-friendly and “compassionate” Obama could wind up a bit more fiscally conservative than Reid, Pelosi & Co.
Jeep is not a brand for the new GM to keep. It is a brand to sell off for immediate revenue.
Jeep dealer lots are bursting. THe bloom on the Wrangler Unlimited is gone. Neither the Wrangler nor even the Grand Wagoneer top 19 mpg HIGHWAY.
But since everyone knows Jeep has value, although though not in the sense that they are selling, the goal is to hot potato it to some other sucker.
I guess they could leave Chrysler-Dodge with minivans and badge-slapper trucks GMC style and just shut the rest down. But then, the sales adder simply wouldn’t be there.
Mr. Boeing might remember what happened when Boeing gobbled up McDonnell-Douglas and presumably thought it would still get all the commercial aircraft business as a combined unit they had won independently. It didn’t happen that way. Boeing got some of the sales, but so did Airbus. The airlines of the world didn’t much like being down to only two major suppliers and have been effectively splitting their business between the two remaining players.
It is easy to pinpoint the cost savings of a combination, but it is darn hard to get the combined revenue numbers to work.
I will say it again, VW picking up Chrysler would actually make some sense as Chrysler has a bunch of things VW needs. GM, on the other hand, already has too much of everything Chrysler has. What good is it to buy the badly damaged Jeep brand when at the very same time you are trying to ditch Hummer! Hummer was well on the way to kicking Jeep’s butt.
Kirk Kerkorian is selling his shares in Ford:
http://blogs.moneycentral.msn.com/topstocks/archive/2008/10/21/he-lost-700-million-in-four-months-and-it-gets-worse.aspx
Meh, the core of Jeep is still the Wrangler, or whatever the baby Jeep is currently named. It is a niche vehicle. Nothing Hummer sells competes with it. Other than Jeep, what does Chrysler have to offer GM?
A total of 11 makes that dont sell?
If GM is currently burning a billion a month, what does the 25 billion bailout accomplish but pushing the inevitable out 2 yrs? Come 2011, will Congress dole out another 25 billion? What miracle is going happen between now and then? GM needs to cut itself to the bone, not take on more baggage.
Everybody should consider buying an old Packard. I have one as a daily driver. They’re great and are already an orphan so they are loved.
RIP GM.
Flarn
As a car guy I notice when a co-worker gets a new car. Over the past ten years easily 75% of the people that drove domestics replaced them with Japanese/Korean/German models. A couple people are truck/SUV nuts that keep their loyalty to the 2.8, but otherwise everyone has defected.
Given this pattern I’m not convinced Ford has much to gain from a GM/Chrysler failure. People will continue to replace their domestics with foreign brands. The loyal buyers of “American” cars are an aging class. Been a while since I heard any old timers say they wouldn’t buy a car from the people they fought in the war. That said, the key to success at Ford or GM or GM-Chrysler is product and image. I agree that Ford seems to be working hardest on this, but I don’t think time is on anyones side.
I can buy gas at 2.50 here in Indiana. The big trucks will live! Not at 4.60 gas, but at 2.50 gas, hell yes.
Chrysler has good trucks, good Jeeps, good large cars. They have low debt (relative to GM or Ford), high cash, will sell the Versa while Nissan sells the Ram. With a little cash from Congress, Chrysler will make it one way or another.
Now Kerkorian dumping Ford is far more troubling. GM is a money pit which looks like they cannot be saved, the monthly cash drain is too big for Congress to pay. A shame, as some of GM’s new cars are quite good. I got an email, a new Silverado at GM employee/family/supplier pricing, at $9200. A great time to buy a truck.
The Silverado was a V8 too at 9200.
Matt51:
You may want to reread that e-mail. I’m a GM employee and I know what our discounts are. $9200 for a new V-8 Siverado can’t possibly be right. Perhaps $9200 off? Anyway, I’m having a hard time finding the synergies in this proposed merger. There was an interesting theory put forth by Laurie Harbour-Felax – GM buys Chrysler, keeps Jeep, and sells the Dodge Ram, plants and all, to Nissan. I’d rather run Nissan out of the truck business altogether, though.
When economy will get better, cost of commodities (oil) will go up along with demand. I would not recommend to buy V8 truck just to commute to work. If you use truck for work (contractor, farmer) the price of fuel (business expenses) will be passed to the customer.
I still have the ad. It is 9000 off Silverado if one is currently leased. I am sure the picture said 9200 for the cost, not discount. For some reason, I am getting an ‘x’ for the picture that had the price, the rest of the add is intact, I will forward if anyone is interested in giving an email address. Could have been an error in the ad.
Pedigo’s Heartland Crossing Chevy
13895 S.R. 67 North
Camby, IN 46113
317-831-0770 or toll free 866-380-2438
Price of gas spiked this summer purely due to hedge funds speculating in oil futures. There was no shortage, the cost of production is very low compared to selling price, price of oil never should have gone where it did. With Congressional scrutiny, it probably won’t happen again.
The economy has been poleaxed, it won’t recover quickly.
The best time to buy a large truck, 20 mpg is not bad
Quasi-related to the topic at hand in a semi-comatose general manner…
During the past few months I have read various “news” stories, print and on-line, of various towns and burghs and a few hamlets allowing a limited amount of golf cart-type vehicle driving with various restrictions.
A couple locales even built special under/overpasses to allow the carts to avoid busier, “faster” streets, to increase the area the carts could be driven from/to.
Certain vehicle requirements were emplaced, lighting, braking ability, etc. but the carts, both gas and electric powered, allowed many folks to pert’ near abandon their “regular” conveyances for much of their in-town driving needs.
Is this the future of much of the USA’s in-town driving needs, at least during the non-severe-winter-weather season in areas of heavy snowfall?
Perhaps investors and future transportation planners should butt heads and get creative….
maybe Chrysler should abandon cars/trucks and create a new generation of high mileage golf cart-type conveyances and work with a horde of cities/towns/burghs and hamlets and prepare for a horde of puttering and near-silent cart-type devices offering great gas mileage and lessened demands for space (parking, lane width usage, etc.).
As a plus perhaps a more relaxed pace-of-life will occur what with the lower speeds that are inherent with golf cart-type vehicles and that can be built-in via legislation etc. to ensure the positives of these vehicles are maintained. Sort of a “We don’t need no stinkin’ Hemis in our carts” sorta’ thing.
There is the future, gents. Of this I am sure. Petrol prices will inevitably rise. The population IS increasing thanks to various facets of immigration (my angry opinions omitted) with predicted eventual population levels approaching a BILLION in the not-too-distant future.
Downsizing vehicles. Maximizing mileage. Slowing the “pace of life.” Making room for more people/vehicles in a finite space. So many “things” the future requires that can be implemented rather quickly.
And, as a plus…
the folks put to work making the alterations that allow the carts to function alongside full-size cars, at least on the streets where speeds allow this to safely occur.
New streets and over/under-passes and sundry fairly inexpensive alterations and additions would pump money into local economies and put folks to work.
Golly gosh, a verbose bloke such as I could write for a month of Sundays about this topic.
I shall end this here by babbling…. a bold vision whose time has come waiting for a large corporation and some receptive politicians and some brainy folks thinking and planning and pushing forward and getting the proverbial ball rolling.
In the stories I read, locals tended to be quite receptive regarding the carts in their midst. If the general public concurs with the golf cart-type vehicle idea the eventual outcome appears to have too many positives to not be successful at many levels.
Okay brainy folks, of which this message board appears to have more than its typical share of Web-based venues of opinion…. who’s gonna’ step forward with this idea and get things going?
I believe Chrysler could be one facet of the implementation of what could be a nation-altering plan.
John Horner:
“Mr. Boeing might remember what happened when Boeing gobbled up McDonnell-Douglas and presumably thought it would still get all the commercial aircraft business as a combined unit they had won independently. It didn’t happen that way.”
The same could be said when (Dumbler)Chrysler gave up on Plymouth. They expected Plymouth customers would buy Dodge and Chrysler, but instead they went to other domestics and Hyundai. That lost them 150,000 sales. Having a Chrysler Voyager cheaper minivan and Chrylser Prowler didn’t help. If Plymouth customers wanted a Dodge or Chrysler they would have bought one.
If GM absorbs Chrysler they will not get an extra 1 – 2 million unit sales. I know Chrysler loyalists and they will not buy a GM branded Chrysler product. They just won’t. If they wanted a GM they would’ve bought a GM. That alone makes this whole idea insanity. There will NEVER be cost savings, only job destruction. And no increase in market share. So what was that about this making GM too big to fail? Ford and the imports will benefit if this goes thru.
obbop:
“…maybe Chrysler should abandon cars/trucks and create a new generation of high mileage golf cart-type conveyances …”
Here’s what you’re talking about:
http://www.allpar.com/cars/adopted/GEM/index.html
“GEM, or Global Electric Motorcar, which is still being built in Fargo, North Dakota, as what is a wholly owned subsidiary of Chrysler LLC.”
What’s the general opinion here on Kirk Kerk bailing out?
Ya suddenly Captn Kirk is dumping Ford share as if it had been contaminated with Cyanide.
His MGM shares has been look so bad since the dawn of civilization either.
What has the World come to?
I suspect Kirk is dumping his Ford shares because he couldn’t have his own way.
Yes, Jeep is a niche player. It’s always been a niche player. Where Daimler and Chrysler screwed up was by trying to make Jeep into a mainstream player. Big surprise, it didn’t work. Properly focused and sized to it’s market, Jeep could still work. I’ll bet Manhindra could make Jeep work. If GM takes in Chrysler and puts Jeep up for grabs I wouldn’t be surprised if Manhindra makes a play for them. It would give them an instant presense to import their trucks under the Jeep badge.
Ken, I can’t see how GM could possibly take on Chrysler and stay out of C11. Even if they pull it off with an even swap by trading GMAC for Chrysler, the sales numbers won’t sustain it. As soon as the operations and R&D are merged together GM will start offering rebadged Chevy’s as Mopars and what Mopar loyalists that didn’t jump ship when the merger went down will do so then. The same thing happened to HP when they bought Compaq about 8 years ago. Most of the Compaq customers jumped ship to Dell and it wasn’t until last year that HP was able to claw their way back to the top of the computer business.
Supposedly Kirk borrowed the money to buy his stake in Ford. The value of his other holdings has gone south (particularly his MGM stock), so he may need the cash. The sale of his stake in Ford may say more about HIS financial condition than Ford’s. Not every big investor is a Warren Buffett…
While I love your Biblical allusions (“carpocalypse” cracks me up) you do know that “antinomianism” means “anti-law,” right? As in believing that the Ten Commandments are not authoritative today.
I don’t quite understand how the word applies here.
Nonetheless, my wife tells me everyday that she absolutely loves her 2008 Ford Edge. Sync is a seriously good system that makes my Acura TL’s Handsfreelink look like clunky DOS. I would seriously consider another Ford product on that system alone.
Ford ain’t dead yet….