Chrysler and General Motors in merger talks

Will the ‘Big Three’ become the ‘Dynamic Duo’?

The names of so many of the car companies of the early 20th century are now either names of divisions of existing assemblers (Dodge, Buick, Lincoln), or relics of the past (Rambler, Studebaker, Hupmobile). Are we witnessing the sun going down on Chrysler?

The merger talks between the car makers was met with caution by the financial press, who pointed out that the acquisition of Chrysler by GM (which is what the deal would end up being) would have several serious challenges. These challenges would include huge redundancies, massive severance payments to reduce those redundancies and a weak auto market at the end of it.

What these same analysts generally feel makes the acquisition interesting to GM is the leverage it will give the company over banks and unions. There is speculation that the Big Three will have to go back to the unions mid-term anyway to ask for wage concessions beyond what they have recently achieved. A merger would give GM more clout in this confrontation.

There is also speculation that GM wants to split off the parts of Chrysler that it needs (Jeep ad the minivans) and shut down the rest. But, according to Peter Morici of the University of Maryland, those two divisions are not worth the cost.

So, the United Auto Workers (UAW) and the Canadian Auto Workers (CAW) are not pleased with the prospect. Ken Lewenza of the CAW spoke of “massive consolidation and massive job losses,” a view echoed with less colourful language by Ron Gettelfinger of the UAW. A European labour leader called it “an absolute catastrophe. Combining two people with bad feet does not create a marathon runner.”

According to a prediction from bond rater Standard & Poor’s, all the Big Three could well run out of money next year and be put under creditor protection. After what has come out of past bankruptcies — Chrysler’s and Air Canada’s, for instance — this is not a result that the unions are going to relish either. Neither puts them in the driver’s seat either way.

At this stage, neither the CAW nor the UAW is a participant in the process. Their turn will come later when the auto companies either try to re-open contracts or force changes under bankruptcy protection. It seems clear that the pain for the auto sector is not over. What is less clear is whether the current three producers can all achieve the efficiencies necessary to continue on their own.

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