General Motors and Chrysler Merger

General Motors Corp. and Chrysler LLC are two of the biggest automakers in the United States. Merger talks between the two companies have been on-going but according to reports, the current financial turmoil would delay the completion of an agreement. Like every other automaker in the country, these two companies have been badly affected by the credit crunch and the high prices of crude. As a result, the companies have to cut jobs and close plants in the country. GM even had to focus its manufacturing in other countries where labor is cheaper, such as Mexico and Brazil.

The companies have registered losses for the past years. GM has lost about $8 billion since 2005 while Chrysler’s latest loss is $660 million for the second quarter of 2008. Their merger could be a way for the company to survive in an industry that is weakening and not getting federal help. While the merger of these two automakers may not happen in a few months, there are certain positive and negative aspects of the deal. On the positive side, by merging their operations, the two companies would be able to stop redundancies and make their processes more efficient.

Stoll and Terlep say that the deal would make the automakers cut costs and save $10 billion yearly. Cutting costs means the elimination of overlapping processes and job descriptions. These could mean eliminating about 40,000 overlapping jobs. They could rationalize their production lines and focus on the more popular brands of each company. They could share manufacturing and assembly plants and even the marketing of their brands could be handled by one team. Marketing is very costly and having one for the two companies would greatly save on costs.

On the negative side, the first difficulty will be the leadership of the merged company. Both companies have their own set of executives and deciding who will lead the combined company would probably cause a fight among the top honchos. Aside from top management, there will be overlapping jobs and this would result in people being laid off on a massive scale. While the companies could save by eliminating 40,000 redundant jobs, it would also mean laying off 40,000 people, some of whom may be too old to find new employment in other companies.

This is a difficult time for the United States and the firing of thousands of employees would not help. It would mean an additional burden for the government. Merx and Higgins report that the United Auto Workers union has already opposed the deal as it anticipates the job cuts. The two companies would have a hard battle ahead of them trying to get the union’s cooperation on the deal. Moreover, the merger between the two companies would mean having to deal with more than 10 kinds of auto brands. The company would be hard-pressed on which brands to let go and which to keep.

The combination should be a mix of brands that would well represent both sides. There is also the question of dealerships. When the two companies combine, there will be about 10,000 dealers. The merged company would have to have a comprehensive plan on how to rationalize their dealerships and reduce them to a more reasonable level. The GM-Chrysler deal has a lot of hurdles to overcome before it would become possible. It has to obtain funding, shareholders, and creditors’ approval, government approval, and cooperation from the union.

And only time can tell whether the deal would be beneficial to the two companies in the long run and help save both from bankruptcy.

References

Associated Press. (2008, October 13). GM, Chrysler Discussing Merger, Source Says. Retrieved October 26, 2008, from www. msnbc. msn. com/id/27125864 McCracken, J. , ; Stoll, J. D. (2008, October 23).

GM-Chrysler Talks Get Wider Audience. The Wall Street Journal. Retrieved October 26, 2008, from http://online. wsj. com/article/SB122472448735361113. html Merx, K. , ; Higgins, T. (2008, October 15).

Unions Oppose GM-Chrysler Merger. Free Press Business Writers. Retrieved October 26, 2008, from http://www. freep. com/article/20081015/BUSINESS01/810150305 Stoll, J. D. , ; Terlep, S. (2008, October 24). Cerberus Looks for ‘Fresh Air’ at GM. The Wall Street Journal. Retrieved October 26, 2008, from http://online. wsj. com/article/SB122481900000765867. html U. S. Securities and Exchange Commission.

General Motors Corp. Form 10-K. Retrieved October 26, 2008, from http://sec. gov/cgi-bin/browse-edgar? type=10- K;dateb=;owner=include;count=40;action=getcompany;CIK=0000040730