Big Three → Big Two

In last 15 years, Chrysler Motors has gone through every possible form of business entity – from a publicly traded corporation to acqusition by a prestigious European carmaker to a limited liability company owned by a private investment group to an impending merger with another near-bankrupt automaker with a possible government ownership. Nothing seems to have helped.

The details of GM-Chrysler merger are not finalized but if finalized this is what GM would get, in assets and in liabilities –

1. $11 billion in cash
2. Estimated $35 billion to $40 billion in yearly sales
3. 47,500 union workers and network of 3,700 dealers
4. Mostly unpopular products lines, very identical to GM’s own products (few exceptions like Jeep and Dodge Ram)
5. Stake in Chrysler; valued at zero by Daimler AG, which owns 20% of ownership.

[Grant Thornton’s Corporate Advisory and Restructuring Services Group just published a report on possible merger between GM and Chrysler. Its forecasts closure of half of Chrysler's 14 existing manufacturing facilities.]

What Detroit lacked is the long term vision. Here is an example - Toyota introduced its mid-size hybrid car in 2001 when average crude oil prices were in mid twenties. In two years Honda launched its mid-size hybrid car. It took 2007 for GM to launch its mid-size hybrid Saturn Aura Hybrid. By that time Toyota has already sold over half a million of hybrid cars, captured the majority of the market and established the strong brand identity. Chrysler even doesn’t have any hybrid model!

Oil Prices ($/bbl) since 2000 and Hybrid Car Launches

GM has asked the $10 billion in assistance from the treasury. This is on the top of $30 billion assistance from Department of Energy. Yesterday Larry Kudlow harshly criticized the Detroit’s bailout – “It’s like industrial policy. It’s saving a failed industry, that’s what it is doing. …  It’s a Franco-German style industrial planning bailout. We are just protecting a failed industry. And I think it’s a completely bad policy”

In the days of economic contraction, FED’s printing press has very aggressive expansion plans!

© Rohit Deshpande