The latest big idea to help save the American auto industry is an old one–merge GM (GM) and Chrysler. It is a road the companies have been down before, but they are so desperate now that any idea the government might cast a benevolent eye on is attractive. The bailout money is so badly needed that it could come at any price.
But, the merger would defeat a number of the goals of both the industry and the new car czar.
It is easy to forget how hard and distracting it is to put together two companies. Chrysler and Daimler did it more than a decade ago. Both firms were in reasonable shape and the move was a disaster. The maladroit managements at GM and Chrysler can barely run their companies. A complex integration would bury their modest intellectual capacities and take their attentions away from the task at hand–staying in business.
A merger also leads to a larger pool of creditors. The fewer the creditors, the easier the negotiations. At Chrysler the primary owner, Cerberus, is likely to want a good deal. That would put it in competition with all of those lenders at GM. Complex negotiations take time that the companies can not spare.
One of the goals of the government should be to save the industry by cutting as few jobs as possible. That seems counterintuitive. But, dropping workers into the unemployment pool and killing the tax base is not helpful. Better to cut UAW benefits to the bone and gut the VEBA. A merger between Chrysler and GM has been advertised as a way to throw out more than 40,000 souls. That is a lot to sacrifice on a marriage that may not work.
Based on current rumors, The Big Three will have until March 31 to present their restructuring plans to the czar. At that point, he can force GM and Chrysler into Chapter 11 if their programs don’t make the grade. Trying to pull off a merger while satisfying the new emperor is out of the question.
Douglas A. McIntyre