Easy loans, tough competition
If automakers in the U.S. want more easy loans from the government, they may face some big changes. As General Motors seeks to separate itself from European brand Saab, some government officials are considering uniting GM with another company: Chrysler.
As one might imagine, the automakers are not crazy about holding hands with their competition.
Why merge?
The most compelling argument for merging the two companies is to retain jobs. Chrysler is struggling even more than GM, and facing a lot more layoffs on top of the ones already made. Officials think that uniting the two companies could possibly save Chrysler, and thus save lots of jobs.
Why not merge?
The government already issued bailout money to both auto companies in December. At that time, the idea of merging the companies was brought up. The reason they didn’t follow through with this idea before was cost. It will cost billions of bucks to close extra factories and dealerships and combine operations.
Kimberly Rodriguez, head of the global auto practice at Grant Thornton Advisory Services, said she thinks the government will at least consider whether it would be better to loan them even more money so they can combine and emerge as a stronger company down the road, according to CNNMoney.com
More money and still more problems
The U.S. Treasury gave Chrysler and GM a combined $17.4 billion in easy loans last year. And still, the U.S. auto industry is clamoring for more money. The two companies have asked for up to $21.6 billion more. Both companies were required to draw up viability plans, and they submitted those plans, funding requests in place, to the government last week.
Chrysler’s viability plan
In the viability plan Chrysler submitted last week, the company mentioned the possibility of a merger. However, this was only a minor footnote, not a main component of its plan for survival.
Chrysler did quote one analyst, saying combining its company with GM could produce between $40 billion and $58 billion in extra profit by 2016.
GM’s viability
It seems a tad risky to say that GM is in the position to save anyone. Right now, GM is getting rid of partner companies, not gaining them. GM has already cut loose its Swedish auto brand Saab. Rumors are circulating that it is considering unloading its German unit, Opel.
GM also says in its plan that it is not pursuing any kind of combination with Chrysler. It also seemed more dismissive of the idea than Chrysler, according to CNNMoney.com.
GM spokesman Tom Wilkinson still says he wants to hear suggestions from the federal auto task force on what would best for the company.
More layoffs on the horizon
Both companies are making cuts as the economy, the auto industry and sales outlooks continue to grow weaker.
Chrysler says it plans to cut about 3,000 more U.S. workers. GM said it is planning to lay off about 20,000 U.S. workers this year. GM also says it will close five more plants by 2012. It previously named 12 other plants it expects to shut down. David Cole, chairman of the Center for Automotive Research thinks that as the companies get smaller, it will only get easier to merge the two.
If the companies can save more jobs with their easy loans by merging, do you think it’s worth it? Leave your comments.
I also don’t feel too sympathetic to them, but I do think that two if the largest industries in the U.S. going under – and they’re also big in Canada and Europe – wouldn’t necessarily be a great idea, and it isn’t as if all these guys do is create balance sheets in NYC. That said, I also don’t think that pumping money into both of these companies ad infinitum is a great idea either. If they can’t be sustained, then I say put them into bankruptcy and merge them, with an end result being that they can stay afloat that way and keep making cars.
Self made crisis, I find it hard to feel any empathy for the situation they’ve gotten themselves in. But I do wish them luck in turning their current financial woes around.