The Auto Writer

Billions Being Sought For Merger

America’s #1 and #3 automakers have been getting a lot of free publicity lately in the form of discussions revolving around the possible merger of the two ailing automakers. One minute the deal seems done, the next moment you hear that one or both automakers is requesting federal intervention to help make the deal work. Talk of a special injection of five to ten billion dollars from the federal government has been circulating all week, monies that the combined entity would use to refinance Chrysler debt, forcefully retire thousands of Chrysler workers, and shut down excess plant capacity.

Once The Eye Of GM’s Affection

On the outside looking in is the Ford Motor Company, itself a one time suitor of General Motors (GM). Ford, who has their own financial problems, apparently believes that going it alone is better than hooking up with GM, and has also declined to pursue Chrysler.

Who can blame them? Being pulled into the GM vortex isn’t something that any company could possibly relish. Unless that company is Cerberus who is chomping at the bit to let GM have Chrysler as it makes its own bid for GM’s share of GMAC (Cerberus owns 51% of the big financial company). With 100% ownership of GMAC, Cerberus will then make its own pitch to the federal government over its portfolio of bad loans.

But, what Ford may want to do is keep a close eye on just what assistance the GM-Chrysler merger might receive especially since the combined entity would create for Ford its most formidable competitor, thanks to federal help. Just as Ford appears ready to turn the corner with its own product overhaul, a rejuvenated GM could present its own set of problems for the Dearborn, MI automaker.

Insist On Being Heard

A GM-Chrysler deal could come almost as quickly as some of the megabank blockbuster deals we have seen over the past few months especially with GM CEO Rick Wagoner being in Washington, DC shopping for a loan as I write this.

And what sort of grounds does Mr. Wagoner have for a quick response for his money request? That’s easy — with nary a blink of the eye, Merrill Lynch was absorbed by Bank of America, Wells Fargo took Wachovia, and Washington Mutual is now part of JP Morgan Chase. The feds, eager to create a sense of calmness in the financial markets (ahem) might also be persuaded to extend that policy to the automotive industry and make the GM-Chrysler merger a done deal before anyone understands what happens.

Working While The Climate Is Ripe

I’m not saying that the Treasury Department is looking to pull a fast one on the American people by granting GM a quick answer, rather the climate is ripe for GM to get the help that they are seeking and fast. With worry over the economy being so high, dragging out a deal does nothing but dampen consumer confidence. Scared consumers do not buy cars or at least those from companies they perceive won’t be around long enough to service them.

I cannot say that GM-Chrysler shouldn’t merge (a topic for another conversation) but that any merger involving federal help will likely include some strings attached to it. Specifically, expect every politician whose constituents have a stake in the auto industry to insist that GM keep as many jobs intact as possible. That would likely mean that GM won’t be cutting any Chrysler LLC brands – at least initially – focusing on closing GM and current Chrysler LLC factories already expected to be shuttered.

Getting Its Share of the Pie

For Ford, they’ll want to make sure just who (or what) they’ll be dealing with post-merger. Jeep is the most valuable brand in the Chrysler LLC portfolio and would likely live on under General Motors. One way or another, GM will get rid of HUMMER, replacing that brand with Jeep. The Dodge and Chrysler brands might survive for the short run as the feds insist (as the new part owners of GM) that both brands be given a stay of execution in a bid to save jobs and keep their respective dealer networks in place. What happens to GEM, Chrysler’s electric vehicle division is unknown, but GM could sell off that asset to the highest bidder. MOPAR would be folded into ACDelco, the GM parts company recently put on the market by the automaker.

No administration, whether it be John McCain or Barack Obama, would enjoy seeing more than 100,000 jobs vaporize in their term, something that the federal government can control if the government gets preferred stock in the “new” GM as some expect will happen.

The Squeeze Is On

Ford might find that competing against a GM that has access to Chrysler funds, Jeep, and minivan technology to be a daunting competitor, putting the squeeze on its own crossover segment thanks to government assistance given to its competitor. Indeed, a bigger and seemingly more powerful GM could be expected to exert its influence over suppliers, unions, and workers as never before, giving the company an advantage not available to Ford.

Strange that this may seem to some, Ford may want to do its own bit of lobbying with the federal government to ensure that its place in the automotive community isn’t hurt, perhaps approaching the U.S. Justice Department on antitrust grounds, maybe even demanding that it be given a piece of the Chrysler pie in exchange for agreeing to the GM-Chrysler merger. Perhaps Chrysler’s minivans could be sold off to Ford who might withdraw their objection to the merger.

Likely, it won’t take the election of a new president for a GM-Chrysler merger to become a reality, but what happens months or a year down the road is anyone’s guess. My thinking is that we’ll see the first of several federal handouts to GM beginning in November followed by Ford, key auto suppliers, unions, workers, and everyone else who has a stake in the auto industry getting in line after them.