Flounder: Great On A Menu, Not So Good In a Merger

How did the flounder get such a bad rep? Is it the eye thing? Who knows...well, actually somebody probably does know, but I really don't care. I'm done with the flounder anyways. I bring up our flatfish friend because the WSJ has stated "General Motors Corp.'s hopes of buying longtime rival Chrysler LLC are floundering." The problem is getting investors jazzed about the idea. Given the recent roller coaster ride that we've been on, it's no surprise that investors are very cagey about all of this. GM, Cerberus are going to have to make a very convincing case that taking two lemons and bringing them together will in fact yield some tasty lemonade.

In this dizzying world of high finance, it's easy to get tripped up on all the players out there. I think it's important to note that banks that have already lent large sums to the auto companies, such as J.P. Morgan Chase & Co, are keen on getting a deal done. Rather, it's financiers who would provide the backing for the merger that are not convinced of by all the PowerPoint presentations. The Journal even speculates that the U.S. government might have to get involved in order for a deal to be finalized. Exactly what would our government's involvement look like? I don't know, but the Journal isn't ruling out the government buying a stake in the new company. It's an interesting point, because there are others who feel that the government may provide a lot of regulatory hurdles to any GM/Chrysler merger.

Other tidbits that I have found interesting: GM's Henderson and Lutz want a deal done quickly while Wagoner is more hesitant. That Detroit News article also goes on to say that GM board's reservations to a Chrysler deal may have been overstated. The WSJ also plays down a scenario that I had predicted where Chrysler's pickup business would be spun off to Nissan. I can't quite believe that myself. The Dodge Ram is a very competitive entry in its segment, it's all new and GM really doesn't have a use for it. Spinning off the pickup to Nissan would allow Cerberus to realize some value, eliminate any regulatory concerns about GM taking too big a chunk of the pickup market and would guarantee that Nissan is able to stay in the game.

I believe that the Chrysler and Dodge nameplates still hold value even if GM can't use them. For any car maker looking to crack the U.S. market, now is the time to get in while everything is on sale. You could cherry pick factories and acquire established brands and dealer network for a song. Seems like a great opportunity to me. Many articles I've read say that all parties involved want a deal done before the November 4 election. That sure seems like a tight deadline to me, but as we've already seen in the past few weeks just about anything can happen overnight.