The global financial crisis is dangerously affecting the real economy: in this context, the major US car makers, or "the big three", are currently arranging partnerships and disposals of assets in order to cope with the slump in sales. Over the past week, two companies dominated the headlines worldwide: according to the Wall Street Journal and The New York Times, it appears that General Motors and Chrysler are currently talking about a possible merger.According to The Wall Street Journal, Cerberus Capital Management, which owns 80.1% of Chrysler's outstanding shares and 51% of its financing arm GMAC, proposed to General Motors the exchange of the car division for the remaining stake in GMAC; whereas according to The New York Times the two companies will merge.
Moreover negotiators hope to finalize a merger agreement between General Motors and Chrysler before the presidential election and are lobbying for government financial assistance to secure the deal.
Lately GM, its lenders and Cerberus Capital Management have been trying to boost investors' confidence with a pitch about the transaction. It portrayed a GM-Chrysler with cost savings of up to $10 billion, an immediate boost in revenue and an increase in cash-flows
The risks of bankruptcy are so high for both of the companies that together they hope to get out of this black period with fewer wounds. "The combined market share (36%) would be too large for the Government to let go bankrupt" said David Cole, CEO of the Automotive Research centre for the USA. The importance of this industry has already been underlined by Bush's administration, which has recently assigned $25 bn to the automotive industry for the research and development of "greener” technologies.
Finally, according to the Financial Times, Ford and Chrysler are currently offering discounts on the newest models so as to boost sales of trucks in North of America. In fact Ford will sell its 2009 F-150 $2,500 below its starting price, whereas some of Chrysler's dealers are selling the Dodge Ram with a $2,000 discount. Sales of the F-150, Ford's most popular car since 31 years, plumbed 39% in September on an annual basis compared to "just" 28% registered for the Dodge Ram.
Only one question remains in our minds: will a merger be the correct move yo save two of the most powerful players in the car industry?
1 comment:
It looks like that it will remain the big three, if all of them make it throughout these tough periods. The last meeting GM had with the Congress did not go so well. After all, if we look at the three US car companies compared to Japan's and Europe's car manufacturers, maybe the management team should be restructured before funding them. US cars still use large inefficient engines that are somewhat outdated. What would they do and how efficient would the money be spent? The current management has proven to have steared the firms into a non-sustainable direction with oil sooner or later running out
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