Of Chrysler, Fiat and Diplomacy.

Over the weekend, The Economist published an interesting article on the possible Chrysler/Fiat joint venture, along with a picture of the revived, succesful (and very attractive) Fiat 500, which Chrysler wants to make here.

It would be tragic if this sensible merger of sorts would fail to go through because of politicians arguing that taxpayers should not foot the bill for Chrysler to be bought out by "them darn furners". Oh please. We would have a global company which would continue to produce vehicles and parts in the US, and would produce more fuel efficent vehicles to boot. Jeeps would be sold worldwide by Fiat, which has not had a credible SUV in its lineup.

What SHOULD happen is that the American and Italian governments, motivated by self interest on both sides, should begin discussions on a joint bailout package, designed to create a truly global company. Aircraft manufacturers have done this for decades. The only caveat is that Chrysler may be too far gone to survive the negotiations.

If Chrysler does go under, this scribler will always look back at this as one of the great missed opportunities of the global automotive marketplace. And a lasting memorial to the hypocrisy of promoting globalization abroad but denying its benefits at home.

Chrysler and GM: The Folly Continues

The papers are still rife with stories about a possible merger between Chrysler and GM. As I have said in the past, this merger makes almost no sense from a model line up point of view, and this was confirmed by a source who recently reported that the new company would consider selling some lines off, like the Dodge Ram pick up line. Naturally. They have completely overlapping and competing line ups in this fast shrinking market.

This kind of shallow thinking is what got Detroit - and especially GM - in trouble in the first place. Firstly, Dodge has just launched a brand new (and vastly improved) lineup of Dodge Ram pick ups. The Chevy/GMC pick ups were redesigned about two years ago. But sure, sell the newly designed models.Who will buy the Dodge Ram product lineup? Not the Japanese. Toyota is still nursing a gunshot wound to the foot that it took by launching the new full size Tundra pick up amid rising gas prices and a declining economy. Nissan launched the Titan in the same segment some time ago. The Koreans have their hands full. Kia launched a full sized SUV last month (need I say more?) and Hyundai, try as it might, has trouble being seen as an upscale car maker.

The Europeans are unlikely ever to want to get into the full size pick up segment in meaningful quantities. So, I ask again: who will buy the Ram line? Indians? Maybe. Mahindra and Tata are itching for an "in" into the North American market, but Tata has already bought Land Rover and Jaguar, and will have its dance card full trying to fix these brands in the US for the near future at least.

So while selling a vehicle line sounds wonderful on paper and makes a great sound bite, it is little more than that.

GM is really in a desperation samba, looking for cash at any price and Chrysler's stash looks tempting. But the cost of integrating the two companies would eats most - if not all - of that cash in the medium term. Cerberus of course, is still the big winner if this comes off, having washed its hands of Chrysler and gained GMAC to boot.

GM needs clearer thinking and some calm. Current management seems lost and desperate, and has lost sight of the real problems, which include years of product and quality neglect and attention only to profitable lines, while failing to turn unprofitable products into winners.

Only a herculean effort by a competent management team can save GM at this point, along with a healthy bailout. As of today, it has neither.

Kerkorian and Ford: The Gambler Takes a Hit.

In the last 24 hours, much has been made about Mr. Kerkorian selling Ford shares. Why? He is a big investor. Note I did not say a savvy investor, however. And I did not say a huge investor. This week he cut his owners hip from 6.43% to (gasp!) 6.09%. It represents a huge sum of money and he took a bath, but it does not mean he is selling anywhere near a majority stake in the company.

So what makes his exit from Ford a harbinger of doom? I have no idea. Remember this was the man who donned his cheer leading sweater and megaphone and pushed for the Chrysler / Daimler deal when he had a large stake in Chrysler. Then he bought into GM and pushed for GM to merge with Nissan/Renault. He failed to get the GM management to see his point of view and went into a huff and walked away. Now he is walking away from Ford, because....who knows? Clearly he is no success story when it comes to investing in Detroit - perhaps it is a good thing that he is walking away now so that Ford executives can keep their focus (pun intended).

Mr. Kerkorian made his millions in the gambling industry and he is now having to dig into that fortune in order to dig himself out of an automotive hole. There is a lesson for all of us in this: Stick to what you know unless you are willing to give yourself a very expensive education.

GM & Chrysler to Merge? Chry-Mo!

A reader contacted me late last night to give me the news that appeared in Today's Wall Street Journal, about the talks between GM and Chrysler about merging. I spent the last 12 hours ruminating about this, and, between irritation and laughter, I decided I had to jot down a few ideas about this rather fuzzy idea.

First, why do companies merge? The idea that you merge with an equal to produce a company twice the size has long since been discarded. You can merge to take advantage of synergies, improve finances for both companies, increase competitiveness, pool resources to make R&D more cost effective....you get the idea. Not everyone will agree, but I think you have to have at least 3 of the above good reasons in order to merge.

Now, lets look at some of the fundamentals, which, in the automotive industry begin and end with the product line. Both Chrysler and GM have developed Johnny-come-lately retro muscle cars to compete with the Ford Mustang, which has been a big hit.So right there, you have two products on which you have spent good cash developing, competing. Chrysler is in the process of rolling out its redesigned line of Dodge Ram pick-up trucks, and GM invested heavily doing the same thing almost 3 years ago. In the SUV world, nothing is selling, but GM has a better lineup of full size SUV's and they both have recently launched a slew of small crossovers. All that development money would be lost because if you merge, some - if not most - of those vehicles will have to go. In the sedan lineup, there are synergies, if only because Chrysler made such a mess of the Sebring/Avenger launch, with a sub-par product. Still not convinced? Look at Hybrids. Both companies have rushed hybrids of their big SUV's onto the market. Now go see how similar the technology is. Certainly not identical. Now think about how much money has been spent and how you would decide about which technology to adapt and how to service these vehicles. Inventory costs for the new company, which will have to continue to service all of the current lineup, will be staggering.

On an international scale, I do concede that Chrysler has struggled to gain a relevant foothold anywhere but the North American market. In this sense, GM's worldwide operations might benefit the Chrysler side. But GM is in trouble in Europe, and car sales are slowing everywhere.

Of course you will produce a smaller company, but the hope is that by some miracle, all this downsizing will produce more cash and a more efficient operation. It's a bit like a zoo deciding that since they both eat meat, it would be more efficient and cost-effective to make the crocodile and the lion share a cage. Neither will be very happy. I doubt if more people would pay to watch them just because they share a cage. Yes, the zoo will have temporarily lower costs, but eventually one or both of the animals will die, and you have nothing to show but an excuse to the tune of "it seemed a good idea at the time".

Finally there is the slew of legal issues that will arise. Chrysler still uses a slew of Daimler Benz technology which our surly German friends will be most reluctant to hand over to Chry-Mo. The dealers will be in endless squabbles about who gets what and how much.

I am sorry, I just don't get it. Who would a merger benefit and how? Under the details leaked, GM would get Chrysler and Cerberus, the current masters of Chrysler would get GMAC, the much weakened auto lender that recently dabbled in mortgages.Nice timing GMAC. Cerberus would be the big winner. They would get a quick and clean exit from the car manufacturing business, which they should never have dabbled in so heavily anyway, and will go into turning around a large financial venture. As venture capitalists, they have the expertise to try this in a credible fashion. GM on the other hand, would be landed with the problems of sorting out not only their own headaches, but Chrysler's as well. Since the current management of GM has done such a sterling job of sorting out GM's situation, why not add in another car manufacturer? Surely that will make things better? Sure. Now, about buying that Brooklyn Bridge....

This merger benefits only one party, Cerberus. If they can convince everyone else otherwise, and pulls this off, I might ask, check book in hand, if they need more investors.