While this topic is a little bit outside of No Load Fund/ETF investing, it nevertheless struck a cord with me.
What happened? Chrysler announced a “shocking” plan to lay off some 13,000 workers and decrease annual production by 400,000 vehicles. Additionally, word leaked out that Mercedes is considering breaking its ties with Chrysler.
So far, this sounds like a good business decision to me, although I fail to understand why it took them 9 years to come to that conclusion. To me, it was a questionable deal to begin with, and I am not sure if it was simply ego driven (let’s see if we can do it) or if there were actual business fundamentals involved.
I think that the original takeover was based on the false premise that if Mercedes was in charge and could improve the quality of the Chrysler cars, higher profits would surely follow. As it turned out, this is a good news/bad news scenario.
The good news is that the quality of the cars has indeed improved remarkably. I can personally attest to that, since I am on my third Jeep Grand Cherokee/Laredo. The latest model was really a step up in terms of handling and overall design, which pleased me as a consumer. I am even more pleased by the fact that, for the latest model 2006, I paid about the same, if not slightly less, than for my first one 15 years ago.
That is not what Mercedes had in mind when they took over Chrysler.
I am sure that, along with an increase in quality was supposed to be an increase in price. This is where the bad news comes in. Mercedes miscalculated by not considering the “image factor” of the American car buyer. Unfortunately, as is well documented, American car manufacturers can only sell their cars if the accompanying offer includes a steep discount, a cash rebate or zero percent financing. It’s a sad fact of life.
Okay, so Mercedes looks to streamline the operation or possibly sell the Chrysler division to someone else. That’s understandable.
Here’s where it gets strange. The first suitor expressing an interest in such a deal is General Motors.
A company in dire straights, which has not been able to compete in 30 years, has financial difficulties in most of their enterprise, including their sub prime loan division, and they’re still thinking they’re king of the hill.
If the Germans can off that albatross called Chrysler to GM, I have to worship the ground they walk on. If GM actually goes through with it, it’s got to be the dumb deal of the week or even the year.
I really would like to understand the reasoning, but I just can’t seem to figure it out. If you have some logic as to why Chrysler would be a good fit for GM, please share it with me.Contact Ulli