Cars: GM-Chrysler Merger Would Be A Lemon

You've got to be kidding me. General Motors and Chrysler merge? If ever there was an example of the old saw "two wrongs don't make a right," this, surely, is it. And yet the news out of Detroit this weekend is that GM and Chrysler have been in talks for a month and there's a 50-50 chance these two ailing automakers will combine their fading forces. This is the worst idea out of Detroit since the Edsel.

What's wrong with a GM-Chrysler motor marriage? Let me count the ways. For starters, there is no white knight here riding to the rescue. Both carmakers are bloodied and battered. GM has lost more than $18 billion so far this year and is hemorrhaging more than $1 billion in cash a month. Chrysler is in even worse shape, with sales down 25 percent this year - twice as bad as the overall anemic American car market. And what little strength these two toppling titans have left is not complementary, it's conflicting. For example, each makes good pickup trucks - the Dodge Ram in Chrysler's case and the Chevy Silverado and GMC Sierra in GM's case. But the bottom has dropped out of the pickup truck business, so what company needs that many different models serving a declining market? What's worse, both companies are loaded down with SUVs, which have become rolling pariahs since gas prices spiked and America started going green. That's why GM is dumping dying SUV models like the Chevy TrailBlazer and has put its Hummer franchise up for sale. Why would GM suddenly want to take on Jeep and big, fat SUVs like the Dodge Durango?

Perhaps what's really going on here is an attempt by some Motown rumormongers to distract from the very real financial crisis confronting Detroit. The credit crunch has driven Detroit to the brink of bankruptcy, with some on Wall Street now predicting America's automakers might not have enough cash to make it through to 2010, when new fuel-efficient models arrive to supposedly save the day. GM, the thinking goes, is in the most peril because its cash stash is shrinking fastest. Bond analyst Shelly Lombard, of Gimme Credit Research, figures that GM has just 9 to 12 months before the money runs out - that's far short of its late 2010 introduction of the Chevy Volt plug-in electric car. "Three months ago, it looked like GM had a good chance of making it through," says Lombard. "Now they don't have the luxury of time any more."

But suddenly those dire warnings have been swept off the front page and replaced by the blockbuster news of a possible Motown mega-merger. Forgive me if I'm skeptical. But even the purported advantages of this hook-up don't add up to me.

Sure, GM would vault ahead of archrival Toyota by acquiring Chrysler's 11 percent share of the U.S. car market, giving GM one-third of American auto sales for the first time since the SUV was king of the road. But that's a rapidly diminishing asset. At this time in 1999, Chrysler had nearly 16 percent of the American auto market.

And then there are Chrysler's minivans. It's true, Chrysler makes a fine minivan, something GM could never manage so it finally gave up and pulled out of the mom-mobile business last year. But for good reason. The minivan market has declined 19 percent this year, continuing a long slide south. What's more, Toyota and Honda have been making inroads with their splendid minivans for years, causing Chrysler to cede its once-near monopoly on those kid haulers.

Finally, there is the Jeep brand, which is considered Chrysler's most valuable asset. The fact that an SUV brand would be your most precious possession speaks volumes about how far Chrysler has fallen. But even if you accept that Jeep still has value - which I do - it clearly is in for a rough ride for the foreseeable future. After all, how do you make a Jeep green, other than with a good coat of paint? Perhaps that's one reason why Jeep sales are off by 30 percent this year.

Perhaps what GM is really after is the $11.1 billion in cash Chrysler says it has socked away. Maybe Chrysler's owner, Cerberus Capital Management, might even kick in a few billion more for GM to take its Chrysler wreck off its hands. Cerberus, a private equity fund that seemed to have a golden touch for turnarounds, has met its match in Motown and appears desperate for an exit strategy.

All that cash could give GM just what it needs to make it through to 2010. But it would come at a very steep cost for Detroit and the upper Midwest. Tens of thousands of workers would be cashiered as GM shut down all the duplicate factories, engineering and back office operations. For example, each company has sprawling technical centers in suburban Detroit that employ thousands of engineers, scientists and car designers. One of those tech centers, most likely Chrysler's, would probably close.

But after a short-term cash infusion and momentary market-share boost, what would GM be left with? A mess of a merger that would make the failed DaimlerChrysler alliance look like a marriage made in heaven.

And GM should know this by now. GM seriously explored acquiring Chrysler last year before Cerberus paid $7.4 billion to take America's No. 3 automaker off Daimler's hands. Back then, GM concluded Chrysler wasn't a good fit. Things have only gotten worse for both companies since then. So what makes this work now?

Before GM opened talks with Chrysler a month ago, it reportedly first approached Ford Motor Co. with this mega-merger idea. After some high-level preliminary discussions, Ford Executive Chairman Bill Ford Jr. and CEO Alan Mulally politely declined. Cerberus, though, seems only too happy to discuss unloading its Motown mistake. But GM, which has been selling cars for 100 years now, should recognize a lemon when it sees one. This is one deal that shouldn't get done.

Cars: GM-Chrysler Merger Would Be A Lemon | Analysis