What happened to the November 4-5 announcement?
Rumors were flying. “There will be something BIG on November 4.” Then, “There will be something BIG on November 5.” Finally, “There will be something BIG on November 6.”
Honestly, when nothing materialized on November 4 other than a historic election that hopefully lined up a nail in the coffin of a voluntarily, fully, irrationally separated America – and by separated, I mean red and blue as much as black and white – I personally decided that the talk of November 5 and later was probably overblown.
It turned out that GM as much as admitted to having planned to take over Chrysler. One has to wonder about that. The talks with GM turned away Carlos Ghosn, whose Nissan/Renault alliance would have made an excellent partner for Chrysler – and for Nissan and Renault.
General Motors, at least, seemed to believe there was a deal. Now we can have our speculation about what really happened, not that we’re likely to ever know for sure.
Line One is the moderately paranoid line of thought – “just because I’m paranoid, doesn’t mean they’re not out to get me.” Perhaps Cerberus wanted GM to think they were serious, and toyed around with them to the point where GM was making long term decisions based on an acquisition – freezing future development, not making strategic decisions they really needed to make, etc. What could Cerberus gain by this?
First, GM would be so weakened by foolishly postponing key decisions (like shutting down factories and nameplates and brands) that they would eventually end up desparate to raise cash, so desparate that they’d hand over GMAC for a pittance just to get it off their books. Then Cerberus could go and get some of that free government money that your White House and Congress so kindly run off the presses for banks, and make a multi-billion-dollar killing, the kind that billionaires trust Cerberus to do.
Alternatively, GM would weaken itself to the point where Cerberus could take them over for even less than GM is worth now, which is very little — around what Volvo was worth before Ford bought it.
Also alternatively, GM’s weakness would make government decision-makers realize that GM was about to topple, making it more likely that they would bail out Chrysler. Few outside of Auburn Hills and Allpar would argue that Chrysler deserved to be saved, but many would argue that the entire domestic industry (we’re neatly ignoring relatively-healthy Ford here, you’ll notice) needs to be saved.
Line Two, incidentally, is what many of the industry folk (journalists excluded) would believe – namely, that they were serious about the talks, but that it all fell through when sober heads at GM realized how much it would cost to wind down key operations, to make the combined company a success. It’s not cheap to shut down a brand or a factory, and of course the fewer people you employ, the higher the pension costs are per each remaining person. Daimler never, ever, ever understood that. Chrysler needed to be kept going, investments needed to be made, simply to make sure the company didn’t shrink, because shrinking companies with large pension obligations automatically see their real labor rates skyrocket. That’s why Chrysler was so healthy in the mid to late 1990s — they were expanding while GM and Ford were shrinking, so their pension costs per active employee were lower than GM or Ford. (And no, I don’t believe it’s a great idea to go to all those people who had contracts with pensions and say, “Unions are greedy and wrong, and so we’re going to take away your pension – the one we legally and morally bound ourselves to pay.” Especially while paying the executives tens of millions of dollars a year and paying bankruptcy lawyers over $1,000 an hour.)
Line Three is similar to Line Two, but has to do with people at GM getting personally offended at the hardball extortion tactics of having GMAC essentially withdraw support for GM dealers, and striking back by canceling the deal. Executives are people and people have emotions. Alternatively, someone at GM might just have decided it should not be the end of the line for Chrysler. Or someone might have realized that 80% of mergers fail, and that this one was clearly destined not to be in the 20%.
Is there a Line Four? Perhaps it’ll make it into the comments.
What is in the word “acquisition” and why did GM use it instead of “merger” in their big Friday announcement? And what exactly was the “major announcement”?
I am becoming more convinced that the “major announcement” was that GM had no desire to attempt any acquisition of Chrysler or anyone else. Their announcement indicated that the people at GM that are truly interested in the survival of GM and the American automobile industry knew there was nothing to gain and much to lose by buying Chrysler but instead on government support along with continued internal changes, which they will announce more about later.
It indicated that while there was a deal, it was being pushed by certain factions within GM enrich that stood to increase their personal fortunes (which were likely heavily invested into Cerberus).
The carefully worded statements regarding the GM “acquisition” of Chrysler were designed to make it clear to the concerned owners (stock holders) of GM that their management and BOD were not so uniformed as to the background mechanizations of Cerberus as one may think.
Cerberus constantly pounded the idea of a “merger” to help GM and the US auto industry weather the current economic storm into the heads of an unsympathetic (auto manufacturer-wise) America in order to cover their true desire to dump and run, destroying Chrysler and bleeding GM in the process. Of course this would just have been “collateral damage” to the dumping but probably necessary for Cerberus to come out ahead. There is big money in Cerberus, some of which own politicians who may be necessary to help GM survive. Ergo GM had to be very careful of whose toes they were about to step on.
Notice how fast things started to happen as soon as we all knew the Democrats were in charge and the Bush machine was truly out. No time was wasted in getting to the table with the movers and shakers of the Democratic party (last Thursday) followed the next one day by announcing GM’s commitment to preserving themselves along with Ford and maybe even Chrysler.
My speculation. Cereberus wanted the rest of GMAC, Chrysler wants Hummer and Saab. GM wants a Minivan. GM was asking Chrysler to build their Minivan for say 100M or so. And Cereberus was going to purchase Hummer and.or Saab and GMAC. Sounds crazy doesn’t it? Well think about it, when GM announced the posibility of a sale of Hummer in October (We in Northern Indiana have known for some time about the possiable sale June or so) and then these “ChryslerMotors” rumors sprung up. Sounds fishy. The people in the talks that snitched were GM people. Making it seem like GM was buying Chrysler so they could get Chrysler/Cereberus to pay more for Hummer and or Saab.
Chrysler needs Hummer for the government to take them serious as a Military supplier, and they could use Saab to go upmarket.
Sounds crazy? Yeah, when I told people that gas was gonna crash around the time of the election and that Indiana was gonna go blue for the first time in 44 years, I got that look that I had 3 heads (no pun intended).
People said that common sense said that Gm was going to buy Chrysler, not the other way around. Haha, now I laugh in their face.
Common sense prevents any US builder from entertaining thoughts of buying anything for the next few years. And Chrysler certainly has no use for Humber, nor does anyone else for that matter. The military HumVees (and the civilian version of same) are still built and owned by AM General. GM acts as their civilian sales agents but only owns/manufacturers the H-2’s & H-3’s. Ergo GM can sell only the H-2 and H-3 lines and I haven’t a clue as to who would want them. Talk about something that should never have been put into production.
Saab isn’t much better and is another marque in danger of disappearing. There is little left of the image Saab enjoyed from the seventies through the nineties. Their sale to GM diluted their identity into the maze of GM modeldom. When GM first put the Malibu nameplate on Saab’s bread and butter sedan they saved the Malibu and began evolving the Saab into a part of the Malibu line. Maybe back in Sweden a Scandinavian angel could rescue the Saab nameplate if the Swede’s care to retain ownership of any portion of their automobile industry.