The Auto Writer

The auto world is in a state of constant flux. In the several decades that I have been following this industry I have seen the fortunes of many automakers turn, almost overnight. Brands such as Oldsmobile, Plymouth and Eagle are no more while Lexus, Infiniti and Acura are now important players. India’s Tata Motors is attempting to purchase Jaguar and Chrysler is expected to import Chery automobiles from China within the next few years. America’s auto industry has gone through a tremendous upheaval with GM and Ford posting record losses while Chrysler is and then isn’t part of Daimler. Today, American made models include the Toyota Camry and Mazda 6 while the Chevy Aveo is made in Korea by GM Daewoo.

America’s Big Three is being pressured by stiff competition, high fuel costs, and a tremendous financial disadvantage thanks to an ongoing health care obligation which amounts to billions of dollars annually. Quality has improved, but there is still plenty of room for improvement. Consumer opinion says that Japanese cars are better built than American cars and until the quality gap is bridged, winning back customers who have fled General Motors, Ford and Chrysler for the imports will remain elusive goal.

We’re In A Global Economy

Today’s auto market is truly a global marketplace. Beyond national borders, the fortunes of General Motors and Ford turns, with Chrysler currently a small-time global player. Profits for GM and Ford overall are being dragged down by U.S. losses, but don’t look for either company to ever abandon their home market. Instead, look for fresh products, new alliances and the sell off of unneeded assets to help fuel future growth.

Ford and Chrysler: Time To Wed?

What isn’t being talked about openly is the possibility of a Ford-Chrysler merger. No, this isn’t an idea that is new — GM was reportedly one of the early suitors for Chrysler before Cerberus Capital Management LP gained 80.1% control of the company, leaving Daimler with the remaining 19.9%. Even GM and Ford have talked about hooking up, but that hasn’t happened and it probably shouldn’t — GM doesn’t need Ford, but Ford could use Chrysler. Cerberus, which is in the business to invest in businesses, is probably an interim owner of Chrysler. If a good offer is made for the company, expect privately-held Cerberus to flip Chrysler faster than you can say MOPAR.

How on earth could a Ford-Chrysler merger be of any benefit? A restructuring of the newly-merged company could create an entity that is stronger and much more competitive than the two companies would be if they were to remain separate. Clearly in order for a blockbuster merger to take place, the following would have to happen:

Ford will have to complete the sale of Land Rover and Jaguar to the highest bidder. Ford can no longer entertain the idea of being a global player with its premium automotive group — they just cannot afford it. Ford ought to take the money from the sale of its two UK brands and plow it right back into the business.

Volvo should not only be kept, but enlisted to beef up Lincoln. As GM has learned, using Opel to provide cars for Saturn (and vice versa) makes strategic and financial sense. Although you aren’t likely to see re-badged Volvos being sold as Lincolns, Ford desperately needs to get back in the highly profitable luxury car business. Don’t think for a moment that Lincoln currently offers much of anything that can compete with Lexus, Cadillac, BMW, Mercedes, Infiniti, etc.

The Mercury brand should be terminated. Unfortunately, Ford has done everything in their power over the past two decades to marginalize Mercury. The brand has no cars that are original as everything they sell is a repackaged Ford.

Once the Ford-Chrysler merger takes place, I believe doing the following would help the new entity succeed:

• Lincoln should be elevated back to real luxury car status as soon as possible with the Chrysler marque positioned as the company’s near-luxury brand comparable to Buick.

• Dodge can be tasked to compete against Pontiac with the eventual discontinuance of unique Dodge trucks. Let Ford sell trucks or offer re-badged F Series trucks as Dodge products (think Chevrolet Silverado/GMC Sierra). The Ford-Chrysler alliance does not need to support two lines of pick up trucks or SUVs for that matter.

• Jeep should return to being an off-road specialty vehicle maker. The brand’s recent foray into the car market with the Compass/Patriot is, I believe, a mistake.

Lincoln, Chrysler, Dodge, Ford and JeepWhile five brands (six with Volvo) seems cumbersome, GM is managing fine with its seven U.S. brands (eight with Saab). Put Chrysler in Mercury’s place and allow Dodge and Ford dealers to sell Jeep products and you have a formidable distribution network. Yes, I understand that the respective dealer networks have enormous pull, but in light off additional competition coming from China (and probably India) within the next decade, most will probably see the light and agree that Mercury must go. Many would be happy to sell Chryslers instead as long as Lincoln is beefed up in the process.

Losers in the battle will include some smaller dealerships as well as thousands of union workers who will lose jobs due to plant closings and shifts in production. If played out correctly, job losses can be minimized with capacity shifted to producing newer, more exciting models. Consumers would ultimately win as the continued intense competition forces every automaker to work harder to produce higher quality vehicles that people want to drive.

Although a Ford-Chrysler merger may seem far-fetched at the moment the present outlook for these two companies cannot remain static, otherwise the long term picture for both is not good. Ford must raise cash by selling off Jaguar and Land Rover while Chrysler needs a stronger global presence, something Ford already has. Alone, neither company can successfully promote their brands, but together the merged entity has a much better chance of succeeding.