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GM to buy Chrysler February 20, 2007

Posted by Charley S in Business-Society Issues, Merger, transportation.
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http://www.businessweek.com/autos/content/feb2007/bw20070220_219247.htm?chan=top+news_top+news+index_top+story

http://www.businessweek.com/bwdaily/dnflash/content/feb2007/db20070218_013874.htm

Well it appears that two of the top three American car manufactures may be headed for a merger. In recent days the German ownership of DaimlerChrysler has expressed interest in getting rid of the Chrysler division. Last year, Chrysler posted up billions of dollars in losses, much like the other American car companies. Daimler, which owns Mercedes-Benz, and Chrysler merged together over 9 years ago and for awhile it appeared that the marriage was working out. In the early 2000’s Chrysler was the only American car company that was still profitable, but it appears that even Chrysler cannot take the foreign pressure. GM has expressed interest in buying out its old rival and has already inquired to the board of directors as to whether this was possible. Some advantages for GM would be that they could cross manufacture Chrysler cars much more cheaply than Chrysler can now because GM has a bigger global network of suppliers. Also, Chrysler has been recognized recently to have very innovative designs and they would seek to utilize their engineers to improve current GM cars. Chrysler also does not have as big a pension problem as GM and they may seek to use Chrysler to help to offset some of the pension costs.

There are some major obstacles to overcome for GM if it were to purchase Chrysler. One would be the fact that there are too many Chrysler dealerships, many of which are literally located across the street from GM dealerships. It would be extremely expensive to close these dealerships because they are franchises and are protected against being arbitrarily closed by franchise laws. Another potential problem would be the integration of the employees of both companies. To start, there would be huge layoffs on both sides of the merger to eliminate redundancies. Also integrating the two giant companies cultures could prove extremely troublesome, especially considering the fact that the two have been rivals practically since the beginning of the automotive age. Frankly, I’m surprised that GM would be considering buying another company when all I have heard recently talks about how bad off GM is. I just checked their last annual income statement, and they lost 10 billion in 2005 and have lost in all the quarters available since then.

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Comments»

1. Kira - February 24, 2007

I am surprised that GM would want to take on such a big project considering how poorly the company is doing. I am very skeptical as to how this is going to pan out. With all of the problems that our text book has discussed about the merging and integration of companies, it seems unlikely that GM could be well-prepared to handle this large task. Maybe GM figures that since they may already be going down the tubes that they have nothing left to lose anyway, so why not?

2. K.C. - February 26, 2007

I don’t see how GM would buy Chrysler as they have posted huge losses and will continue to do so for at least another year because they still have yet to solve their pension compensation crisis. Furthermore, GM already has a host of nameplates to deal with and if anything, I could see GM dumping a brand or two, SAAB maybe? If Daimler were to sell Chrysler I could more realistically see it in the hands of an Asian company, maybe Toyota or KIA.


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