The merge-and-nationalize “solution” favored by those who don’t know their history has a new lease on life, reports the Financial Post. And the new champions are none other than GM’s bondholders, who continue to negotiate an equity restructuring. The logic goes that since bondholders are being asked to swap their debt for equity, a larger merged firm would make for a safer investment. And the idea might just be crazy enough for the government to buy in too. “From the government’s perspective, a GM-Chrysler combination offers the appeal of collapsing two problems into one and achieving necessary consolidation,” reckons Citigroup analyst Itay Michaeli. “But it would likely also entail additional government funding.” Just $4B-$6B extra though, and worse job loss. No biggie. But, argues Michaeli, “if a true buy-in exists that [a merger can generate US$6 billion to US$8 billion] in annual EBITDA synergies . . . we would think that the GM bondholder committee would attempt to condition the [debt-for-equity] exchange on M&A, since the upside would essentially accrete to them.” Of course that’s an “if” of epic proportions.
I never buy anything from anyone who uses the term “synergy.”
–chuck
Are they completely nuts? There’s two very sick companies, trying to find away out of their mess (we hope), and the great idea is to merge them….. the bondholders actually think that the remaining employees don’t have enough to do without figuring out how to integrate these two?
Great picture.
What solution doesn’t entail additional government funding?!
I won’t buy anything from anyone who uses the word “accrete”, because it makes me think someone will have to clean up the mess afterward. :)
@Dave – I think it’s actually a better option than the alternative, where Chrysler either simply ceases to exist or subsists on life support for years to come. I can’t see any possibility where the current company that is the dregs of the failed D-C merger has the necessary talent pool or prospects to be self-sufficient again anytime in the next 5 years. At this point, the best we can hope for is to see a US auto industry survive to eventually thrive again with the minimum possible waste of taxpayer dollars and job losses. (I know, is that all, easy, right?). If we can merge the two companies and reduce Chrysler’s job losses from “everyone that works there” to “whatever GM doesn’t need” then that’s a win in my mind. Chrysler doesn’t have much left in the way of unique or overlapping branding except the 300, Jeep, and the Viper, and as far as I can tell, they have even less in the pipeline than GM as far as future vehicles go, so at least we’re not making GM’s “too many brands” problem significantly worse.
This is just bondholder greed and political weakness.
GM is struggling to stay alive and reorganize; dumping Chrysler, a worthless auto company with huge UAW and dealership liabilities, on GM will destroy any long term chance that GM has.
Please, anyone, tell me why Chrysler should not just Chapter 7. They have about 36,000 US employees, less than Circuit city.
Chrysler’s factories and dealerships will not vaporize in liquidation. Chrysler’s good assets will be sold to other companies, and its good dealers will form franchise agreements with other automakers.
VW might buy the minivan factory. Nissan might buy the Ram factory. Viper is trivial, but someone will buy it. And the dealers will make franchise agreements with new companies (maybe sell Fiats as real Fiats instead of rebadged Chryslers).
Merging GM and Chrysler is something that cowardly politicians and greedy UAW workers, dealers and bondholders would be for.
But it is something that will absolutely destroy GM.
Imagine that you have someone who is weak and dying, that can barely move, and a corpse. You feel bad for the corpse and you wish you could get it to move.
Sure you can tie the corpse to the weak and dying person, and that will get the corpse to move. But it will not bring the corpse back to life; it will only kill the weak and dying person faster.
“When your opponent is drowning, throw the son of a bitch an anvil.”
Merging GM and Chrysler similar.
the whole bailout is supposed to safe workplaces. however, any more efficiency, mergers etc. only can come with layoffs, dealer closing etc. So either way there will be people unemployed. so the bailout doesn’t accomplish anything. In addition, even if it would save the big 2.2, it then would destroy workplaces with the transplants because every (Mexican built) GM that is sold, destroys one (US built) Toyota.
A merger of two bad companies that suffer from bad products and too many overlap and too many brands really sounds good. then GM not only has 10 different sedans (that all are the same except for the badge and name), then it will have 13 cars competing for the very some costumer.
I’m not a merger expert, apparently premium-RWD (Mercedes) and crappy-FWD (Chrysler) didn’t work out because there was no synergy to gain. However, in a world of overcapacity a merger between to crappy-FWD companies doesn’t seem to be good either.
Let my taxpayers go!
“From the government’s perspective, a GM-Chrysler combination offers the appeal of collapsing two problems into one”
I think this sort of thinking is entirely too short sighted. How about we combine the banking crisis, the automotive crisis, the housing crisis, and the wars in Iraq and Afghanistan with breast cancer, autism, poverty in Africa, and Knight Rider and tackle them all with one decision? Thats the kind of “vision thing” we need right now.
OK, I’ve backed into a corner, I got my guard up to protect my face and crotch…I think they should combine GM and Chryco.
[ouch, uggg, doh, didn’t see that coming]
-First and foremost, it would piss off the UAW.
-The govt would only be giving a bonus a loan to one company. 50% Higher Maybe a change to get paid back.
-Might finally force GM into C11.