While the news of a GM-Chrysler merger may be enough to have aficionados and loyalists shaking their heads in disgust, stock brokers are rubbing their hands in glee with shares in GM rising 33 percent upon receipt of the news.
Analysts were skeptical that the merger could bring any substantial savings to GM’s core business, but a deal with Chrysler may allow the US automaker to boost its cash holdings while at the same time reassure consumers they are not going out of business.
Shares of GM, which traded at a record 60 year low last week, jumped from $4.89 on Friday to $6.52 today. At the same time the Dow Jones industrial average also saw a one day record rise of 11.1 percent.
GM and Cerberus Capital Management (who own a 80 percent stake in Chrysler) have been in discussions about the deal that would combine the number one and number three (respectively) US automakers in to a global giant, but with sales dropping sharply, concerns have been raised by US rating’s service Standard & Poor:
“Our most serious concerns regarding Chrysler are more immediate: the pressure on the company’s liquidity during 2009 from the rapidly weakening state of most global automotive markets and the constrained state of the capital markets,” S&P said in a statement. “We believe that a GM-Chrysler combination or alliance could create substantial cost savings, but massive execution risks would also result. We would be skeptical that a GM-Chrysler transaction could easily address our primary concern by resulting in a substantial increase of current liquidity for the parties involved.”
Representatives from Standard and Poor were also quick to point out that it would be suppliers, rather than the merged companies, who would be the most likely beneficiaries of any merger:
“We are skeptical of major incremental savings resulting from a combination. The major costs are in the manufacturing, engineering and marketing capacity required to support too many brands. We do not see a combined company as being more effective in reducing those structural costs than two stand-alone enterprises.”
GM’s key consideration in any deal would be its impact on the automaker’s cash position and while GM might benefit from an acquisition of Chrysler if the deal helped to reassure US consumers about the staying power of its brands.
“The greatest near-term risk to GM, in our view, is that consumers stop buying its products for lack of confidence in, among other things, the warranties behind the vehicles. By joining with Chrysler, GM could reinforce its market-leading position in the US, potentially reducing the risk of lost consumer confidence.”
A combined GM-Chrysler would also be likely to promote a more orderly wind-down of non-productive assets in the auto component supply base. CarAdvice will bring you more news on the potential merger as it comes to hand.
2 negatives do not equal a positive.
Out of the fry pan into the fire,
I thought one of GM’s problems was they had too many brands and now they are taking on Chrysler, Dodge and Jeep?
Desperate times, desperate measures. Thats clear…
The only reasons I could see for the share price jump would be due to the rest of the market going up and the possibility of GM selling of GMAC completly to Cerberus and getting out of the hot potato finance market.
Get rid of Rick Wagoner.Thats it, do it now. No merger. Just get rid of Rabid Rick.
Problem solved. He is the worst CEO of any company currently trading on the stock exchange… Thousands have said this not just me..
“2 negatives do not equal a positive. ” – Wholly agree. GM is just prolonging the inevitable if they don’t actually do a complete strategy makeover. How long will the cash in hand bonus from the merger last?
Sales will be less IMO, the brands wont be affective as it would be as they would being seperate and yes the loyalist may as well jump ship.
GM would be in much better shape IF they didn’t recall and crush all those electric cars they leased to celebrities 8 or so years ago (i forget the name of it but it was a 2 door Mirage size car). Instead of releasing an economical electric car back then, they canceled the project, recalled and crushed all the cars AND released a V8 Hummer instead!!
I have no sympathy for the situation they are in….good riddance as i expect one or both of them will go bankrupt!
Still trying to figure out what GM hope to achieve here. Heard about this last week, and apart from Jeep (which is over burdened with useless product now) Chrysler Corp has nothing worht picking. 300 has run its day, the payout from Getrag will be a pittance and nothing else of theirs is selling up a storm.
Unless they just want out of GMAC and this is the only way Cerberus are willing to let it happen, even then I’d be thinking twice about it.
Could be good for Ford. If the merger goes ahead, Ford could benefit with severly pissed Mopar buyers not wanting to support GM, and buying Ford products instead just to show who’s boss! Will be a sad day in motoring history if Chrysler folds.
GM is in such a better position than Chrysler. GM actually makes plenty of good cars globally, Chrysler consistently doesn’t.
I still think Ford will get out of this situation if anyone, GM will have to sell major assets and close down brands, but i’d say its core operational units (Cadillac, Chevrolet, Holden) will survive.
Chrysler will shed alot of jobs if this merger goes ahead.
It will make GM easily #1 car maker in the world, so GM maybe able to absorb some of these jobs.
Chryslers engineering will be cannibalized by GM as you would expect.
Some Chrysler cars will remain under there own name.
GM’s quality is better than Chryslers, so Chrysler owners will benefit.
Gmac will be passed on to Cerberus if the merger go ahead.
Also the US gov are giving the big three 25 billion each to develop more evironmental and economical vehicles. This will give a merg company like GM-Chrysler a huge cash pool to rethink there global vehicles and come up with some new idea.
Of course this will not happen overnight.
Wasn’t it brian who said ‘Blessed on the meek……for they shall inherit the earth’ in the sermon on the mount.
When GM/Chrysler/ford collapse it will be 9/11 on an automotive scale with only the meek Koreans, chinese & indians to pick up the pieces………….
Actually the Koreans aren’t very meek anymore.
once again the greed of americans have come back to bite them… big cars, big buildings, big wars – the classic american way.
Sorry about the rant.. couldnt help myself. :(
Yes COCOWIRE, Those silly yanks with their Internet and their entertainment and their business models and their hollywood and their saving Aust in WW2 and Their silicon valley and their culture that we love and their food that we eat…..
Sorry about the rant.. you couldn’t yourself :)
Like throwing an anvil to a drowning man !
Apparently GM aproched Ford first,but Ford said no after a couple of months of negotation.Watch for another stock market crash in 09 and the talk is the U.S auto industry will collapse.