Report: GM Considering Absorbing Chrysler, Eliminating Brands

The Detroit News is reporting that GM is considering absorbing Chrysler under a takeover deal, then phasing the automaker out of existence. Similar to the Chrysler takeover of AMC in 1987, GM would eliminate overlapping models, integrate its own parts and engineering into the remainder and likely dump the Chrysler and Dodge brands. Analysts predict that GM would keep the Jeep brand as well as Chrysler's minivan models, adding them to its own product lines. If such a scenario were to occur, GM would gain Chrysler's roughly $11 billion in cash and remove a competitor who now accounts for approximately 1.5 million units per year. But is GM willing to risk the enormous political and economic pitfalls that would surely follow?

Gerald Meyers, former AMC chairman turned U of M business professor says, "The others (automakers) will be delighted to have Chrysler just die and take 1.5 million units out of the industry, which is about what the excess is." And indeed, the elimination of a major automaker may be precisely what's needed to right-size the industry. But the nationwide cost in terms of lost jobs and plant closures would be massive.

GM and Chrysler are both struggling with overcapacity and an oversupply of dealerships; combining the two would simply give the resulting entity an excuse to shed tremendous redundancy in one fell swoop. Problem is, most of those redundant assets have families to feed and bills to pay; the impact to Michigan's already-fragile economy would be devastating, but every state in the union would feel some of the effects.

So what do you to if you're GM? Save yourself at the expense of tens of thousands of jobs? Would the result lead to a GM that's healthy and profitable again, or would it stave off the inevitable bankruptcy filing and lead to a generation of ill-will toward the automaker from families ruined by its scorched-earth takeover of Chrysler? We don't know the answer, but we certainly hope GM's corporate captains are asking the hard questions before making any far-reaching moves. [Detroit News]

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