GM and Chrysler Merge: Two drunks walking down the street

Two drunks walking down the street holding each other up...until they hit the curb, then they both fall down.

The New York Times reported Friday: “General Motors is in preliminary talks about a possible merger with Chrysler, a deal that could drastically remake the landscape of the auto industry by reducing the Big Three of Detroit automakers to the Big Two.” I have long recommended that Ford and General Motors combine. Now we have GM and Chrysler nearing the altar. Actually, make that Cerberus Capital Management the firm that took an 80% stake in Chrysler from Daimler in 1998 when Chrysler had a 15% market share. Well, for Cerberus that wasn’t such a great investment was it with Chrysler’s market share now at 11%? Chrysler’s Jeeps and minivans...just what the new merged company would need in their product lineup. Not. And, of course, we have GM so loaded with SUV’s and large pickup trucks that I suspect a 50% off sale is just around the corner. $70/bbl oil, notwithstanding. With GM burning through about $1 billion/month of their current wallet of about $21 billion, GM is on negative watch and should be at the Fed’s door any second for a shot of transmission fluid before all the works get gummed up. Given the fact that Cerberus had an appetite for Chrysler to begin with and that investment was preceded by the purchase of a controlling stake in GMAC in 2006, it would not be surprising to see this merger of failing companies combine. According to the Associated Press: “...Chrysler, a privately held company, doesn't have to open its books, but it lost at least $510 million in the first quarter and $1.6 billion last year. Its sales are down 25 percent so far this year, the worst drop of any major automaker.” Apparently GM did talk to Ford earlier in the year, but Ford in a typical head in the sand reaction did not care for the idea in spite of the fact that, in my opinion, a merger between those two should have happened in the 60’s when they both discovered they didn’t know a thing about the auto business and couldn’t learn a thing from the Japanese. It would be better for all three of these drunks to merge together because then you could have some immediate and measurable savings and synergies with the Fed acting as the host for a form of Automobiles Anonymous. And three drunks going down the street have a better chance of not falling on their faces when they hit that curb. Ford [F-$2.27] runs the better shop and has a clearer vision of the future with Alan Mulally determined to hoard money, simplify operations and slash the number of dealers. Combine the three, you get my vote. Combine GM [$6.40] and Chrysler as I think will happen and you have a new name perhaps to add to this list of these Dow Jones Industrial Average stocks: American Cotton Oil American Tobacco Chicago Gas Distilling and Cattle Feeding Laclede Gas North American Tennessee Coal & Iron U.S. Leather preferred U.S. Rubber AXXel Knutson 10.17.08

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