US Car Companies: Let Ford (F) And GM (GM) Merge Domestic Operations

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One thing is very clear now. The plans for GM (NYSE: GM) and Ford (NYSE: F) to make money in North American in 2009 are dead as a door nail. Both stocks trade below the levels where they changed hands two years ago when there was legitimate concern about Chapter 11.

The companies, in some ways, have done their best. They got semi-spectacular deals with the UAW by convincing the union that they were at death’s portal. They cut billions of dollars in other costs by closing factories and firing everyone who was not hiding under a desk or in the men’s room. GM claims it took $9 billion in costs per year out of the company’s expense structure.

All of that is well and good, but macro-economic problems and poor products have completely undermined future plans.

Lehman Brothers reported earlier this week that the rising cost of metal components would add $350 to the expense of each car built in the US. For companies which are already offering thousands of dollars in rebates to move inventory, that means that many models will lose money with each and every sale.

High gas prices, approaching $4 quickly and perhaps going higher as the year wears on, will keep buyers out of showrooms, especially those shoppers who would purchase the high profit margin SUVs and light trucks

Detroit does not have a lot more to cut. Companies can shut down completely like Chrysler will, but that only works once or twice.

Both Ford and GM make money overseas. That is more than offset by their losses in the US. There is no ready solution to that math because the US market has too much competition from Japan and is weakened by an awful economy.

The one, and perhaps only. solution that could work is to allow GM and Ford to form a holding company to combine their US operation. Regulators and the UAW would have to go along, but there may be no other reasonable options.

Combining in the US would not mean taking away competition. Both companies could keep current model lines but would share certain employees, manufacturing facilities, component sourcing, and engine and chassis platforms. GM does this now by offering essentially the same cars with different brands.

The savings would likely be in the billions of dollars each year. That may be enough of a buffer. There is no buffer now, and there will not be one in the future. As banks share clearing houses, car companies in the US should share facilities. Otherwise the game for GM and Ford in the US has reached its end,

Douglas A. McIntyre