The blogosphere has erupted over reports in a German business magazine that GM was talking to DaimlerChrysler about buying the troubled Chrysler Group. The magazine cited company sources as saying the talks were in full swing, but still at an early stage.
GM and DCX might indeed be talking (these days automakers talk a lot about things like components sharing, such as the deal Ford and GM did to develop six speed automatic transmissions together). But it's almost certain the last thing they're talking about is a Chrysler deal.
Buying Chrysler makes absolutely no sense for GM. Here's why:
1) Product overlap. GM already builds vehicles that compete in every segment that Chrysler's in (and a few more besides). Buying Chrysler would bring no new market niches to GM.
2) Capacity. The last thing GM needs is more manufacturing capacity in North America. Indeed the challenge for both companies is to "right size" their businesses to match the reality of a globalized North American market. GM needs a smaller manufacturing operation here, not a bigger one.
3) Market reach. Chrysler brands have a minute presence in markets outside North America compared with GM brands, and would only require further investment to grow. There's not point in doing that just to compete with yourself (see #1).
4) Legacy costs. The cost of healthcare, pensions, etc. for its U.S. workforce is already GM’s biggest business cost. Buying Chrysler would only add to the problem. And because the UAW is also heavily represented at Chrysler, there's no way of leveraging the two workforces to reduce costs.
5) Complexity. GM is showing signs that focusing on the basics and making the most of its global resources is a smart strategy. Trying to buy and integrate a company the size of Chrysler would be a fatal distraction for the senior management team.
6) Cost. Potential cost savings and synergies from things like platform sharing will excite the analysts on Wall Street, but in reality, it's a red herring. Done right, GM could save some bucks, but with the long lead times and different product cycles it would be 10 to 15 years before any real benefits might show. GM, in recovery, can’t afford the time.
Bottom line: There's no upside in Chrysler for GM. At any price.
by Angus MacKenzie
Via: MotorTrend