Gm-chrysler Merger: not a Very Good Idea?


by Noah Scott - Date: 2007-02-21 - Word Count: 509 Share This!

In the news: According to a source familiar with the situation, General Motors Corp. is already in the preliminary stage of buying Chrysler. News of the said transaction was first reported by trade journal Automotive News. However, GM and DaimlerChrysler have both refused to give their comments on the said report.

The news has brought favorable effect on DaimlerChrysler's stocks which rose to a significant degree. The same goes for GM shares although it slipped at first but was able to recover and moved higher in the end. DaimlerChrysler shares have increased by 3.5% to $72.72 in midday trading on the NYSE while GM shares rose by 19 cents and closes at $36.63.

Automotive News has cited unnamed source in Germany and the United States saying that the two automakers engaged in high-level transaction with topics such as buying the Chrysler Group in its entirety.

Reuter's source however said that the possibility of whether GM would want Chrysler's finance business is very slim considering the fact that it has recently sold its own finance arm. Various speculations on the possible sale or spinoff of Chrysler have started when DaimlerChrysler Chief Executive Dieter Zetsche announced recently that all options were open for its struggling North American unit.

A great number of analysts are skeptical about GM's possible acquisition of the Chrysler Group. They are questioning the benefits that General Motors would obtain out from such a buyout. It should be noted that both automakers are currently struggling with their excess production capacity, plunging sales - add to that their heavy exposure to trucks and sport utility vehicles.

According to David Feinman, a fund manager who specializes in distraught debt with Havens Advisors, he doubts that world's largest automaker and producer of quality auto parts like the GM bug shield, General Motors would really pursue a deal as lucrative as buying Chrysler. Aside from that, both GM and Chrysler have a large number of overlapping models and a merger between these two companies would only further result to more job cuts and not so competitive products. "If they do merge, there would have to be a massive streamlining and there would be hundreds of thousands of more jobs loss. The only one to benefit would be Daimler because they would get rid of their Chrysler," added Feinman.

State Treasurer Robert Kleine has also shared the same observation as Feinman and he said that the merging of General Motors and Chrysler would produce a negative impact since it would trigger more job cuts which will result to decline in incomes and property tax receipts as well as sales and business tax revenues.

Kliene has also admitted that there is very little that the state can do to prevent a possible merging. "There's not too much we can do about the business decisions of private companies," he further added. But he said that there have been some talks on setting up special funds for displaced workers who would need retraining or who wants to start their own businesses in case of layoffs or buyouts.


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Noah Scott is a 30 year old native of New Jersey, writer, and car fan - having grown up with both parents being auto enthusiasts. He works for an automotive consultancy firm and regularly contributes articles to car magazines.

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