GM and Chrysler: GM Wants the Golden Egg, But Not So Much the Goose That Laid It

There must be a few billion different ways a GM/Chrysler deal could go down, but here are a few of my thoughts. Firstly, most folks agree that GM couldn't support all those brands. Hummer recently shuffled management, so it would appear that it is ready to be jettisoned from the mother ship. Once GM's decks are clear of Hummer, then it could easily adopt Jeep into the family. As for Chrysler and Dodge, GM could certainly close down those brands but I have to wonder if there isn't some equity in those nameplates for another manufacturer--let's say from China or India? GM could run out the existing Chrysler and Dodge models until those brands could be absorbed by someone else. I can't see GM wanting much out of Chrysler's portfolio other than Jeep and the minivans. During that time, GM could also cleave off the Jeep brand from those dealerships and integrate Jeep with Pontiac and Buick. Who knows, maybe the Dodge Ram's platform could be sold to Nissan since it is currently relying on Chrysler to manufacture its next generation Titan pickup. Other Chrysler facilities, such as its GEMA engine facility, could also be sold a la carte. Let's not forget that Cerberus was already looking at options to sell off the Dodge Viper. There gold to be found in them there hills.

At the end of a couple of years, GM would own a historic nameplate (Jeep), have a competitive minivan, have extra money in the kitty and reduced North American manufacturing capacity. By selling the Dodge and Chrysler brands to another manufacturer, it could avoid the bulk of expensive lawsuits. Certainly there would be some costs to winding things down, but GM might be able to have Cerberus help defray those costs. I'm not sure of the particulars, but I would presume that if GM does merge with Chrysler it would get a bigger chunk of the $25 billion loan package already approved by the government.

GM might also demand that Cerberus relax GMAC's lending standards a bit. Recently GMAC, which is 51% owned by Cerberus, stated that it would only lend to borrowers with 700+ FICO scores. That's a real deal killer because most banks don't want to take on a portfolio comprised of only lower scoring borrowers--they want some of the most credit worthy buyers as well to balance things out. Part of a deal with Cerberus could involve a lowering of that standard so that GM dealers can break the gridlock on credit.

I think a merger, structured with some of the components above, could actually work. We do have too much overcapacity and Chrysler doesn't have any more rabbits in its hat. Combining GM and Chrysler would involve some pain but at the end of the day the remaining industry players would all be better off. If GM can spinoff the Dodge and Chrysler brands then it save a lot of hassle and help to keep those storied brands and their dealers alive.