Desperate times call for desperate measures, and no one in Detroit is more desperate than General Motors -- which explains why the General is lookin' to marry cross-town rival Chrysler. They've been courting for about a month now, and it's time to break out the shotgun and get everyone to the altar.
The economic implosion has the Big Three sucking fumes, and a merger may be the only way to keep GM and Chrysler from going under and taking a big part of the economy with them. GM is expected to announce billions in losses on Friday. Chrysler is privately held by Cerberus Equity Management and so does not disclose its finances, but they can't be any prettier. The two companies may be living on borrowed time, and the Center for Automotive Research on Wednesday warned (.pdf), "the likelihood of one or two of the Detroit Three auto manufacturer ceasing operations is very real."
GM and Chrysler are an ugly couple, but they're made for each other. It's in our interest that they get hitched. GM's looking to Washington for as much as $15 billion for the dowry, but Uncle Sam hasn't been willing to pony up.
He should. If he doesn't, we'll all end up paying.
Domestic auto sales fell to a 25-year low last month. GM led the way with a decline of 45.1 percent, followed by 34.9 percent for Chrysler. Ford saw sales decline 30.2 percent and of the Big Three is generally considered to be in the best shape -- though that's a relative term.
The domestic auto industry has all but collapsed and CAR predicts (.pdf) a failure by one or more of the Big Three "is probable within the next 12 months." There's much more at stake here than cool cars like the Chevrolet Volt or Dodge EV. A 50-percent reduction in domestic production would pull 2.5 million jobs and $125 billion from the economy in the first year as the slowdown rippled through the industry supply chain. Pull the plug entirely and the losses grow to 3 million jobs and $150 billion.
The Bush Administration has made $25 billion in loans available to help Detroit retool to meet tightening fuel economy rules, and the automakers' CEOs were to meet with House Speaker Nancy Pelosi on Thursday afternoon to beg for more money. The Bush Administration so far hasn't been interested in bailing out Detroit or giving GM a hand with its merger. It ought to be.
The merger essentially comes down to cash, as The Economist succinctly notes. GM would get the $11 billion in Chrysler's piggy bank. Add that to the $21 billion in cash and $5 billion in credit GM has and the General figures it'll have enough money to carry it through the end of next year. Cerberus, on the other hand, would get the 49 percent of GMAC (GM's lending arm) that it doesn't already own. The idea there, The Economist and others presume, is GMAC will get a piece of the $700 billion federal banking bailout, something that Cerberus probably finds more valuable than anything Chrysler can offer.
Holy matrimony in Motor City would change the face of the auto industry. A combined GM/Chrysler would control more than a third of the domestic market. It almost certainly would result in job loses as the companies consolidated operations. But it could create a leaner, more-efficient domestic auto industry. Desperate times call for desperate measures. A GM-Chrysler marriage may be ugly, but it's more attractive than the alternative.
Photo by Flickr user Mr. Wright.
