Thursday, June 26, 2008

GM-Ford Merger Mentioned in GM C-Suite and Shot Down

By Chris Haak


Although it obviously hasn't come to fruition, BusinessWeek reported this week that some GM executives have thought out loud about the possibility of a merger at Ford. According to BW's sources, GM's management's consensus was that such a huge merger, even if it could pass muster and be approved by both companies' shareholders as well as the government, would be a huge distraction to GM, who literally needs to focus every ounce of its energy on surviving the next two or three years.

If such a merger ever happened - and I'd consider it unlikely for many reasons - it might solve some problems such as reducing overhead costs and allowing the combined entity to share a dwindling cash pile to sustain the downturn in the US auto market until it recovers. However, it would create so many more problems, such as a proliferation of brands (GM already has too many brands; would adding 50% more brands do anything other the further divert resources from the core products?), redundant products, excess/unused factory capacity, and a lineup that's far larger, but still doesn't match the current buyer's wants or needs.

Although GM hasn't publicly even confirmed that the discussions/mention took place, it's safe to say that many GM fans and Ford fans are a bit freaked out at even the prospect of their favorite company joining the "enemy." I mean, will the Calvin peeing on the other guys' logo stickers have much meaning if Ford and Chevy trucks are owned by the same company? That would be like a Chevy owner having a picture of Calvin peeing on a GMC logo.

More worrisome, however, is the knowledge that brands would absolutely need to be eliminated; Buick and Lincoln are basically serving the same segment; Ford and Chevy have a lot of overlap; Mercury and Ford already overlap; Pontiac and GMC lineups both consist almost solely of rebadged Chevrolets so are redundant. We've seen a perfect case study for what happens to market share when a brand is eliminated - that market share disappears. Just ask GM how many Oldsmobile customers it retained; the answer is almost zero. Buicks and Chevys may have looked nearly the same, and been the same under the skin, but Olds people didn't want to buy Buicks - they wanted Oldsmobiles. Instead, they traded their Cutlass Ciera/Calais/Supreme/etc. on a Camry, saw that it was a good, reliable car, and they are now out of the GM fold, and GM's market share is lower than it's been in decades.

What had been unimaginable just a year or two ago seems to be an ever more likely scenario as panic sets in among the Detroit Three. Just as the last of the independent manufacturers such as AMC merged rather than just closing up shop, absent a dramatic turnaround in the next twelve months, we'll probably see something similar from GM, Ford, or Chrysler. Some would argue that the beginning of the end of the US auto industry happened in the 1970s, but I'm talking about the actual death of the industry as the endpoint, not the events that eventually got us close to it. However, I really believe that when we see GM and Ford, GM and Chrysler, Ford and Chrysler, or any of the three and a foreign manufacturer merging, it truly will be the beginning of the end of our domestic auto industry. I hope for the sake of millions of workers, not to mention our national economy, that we don't get to that point.

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