Daimler, Gm Talk Gets Serious

The heat is on… but not in Saigon – it is actually right in Auburn Hills. The scorching temperature of rumors surrounding Chrysler Group’s recuperation would greatly challenge a Volvo thermostat . The heat is setting ablaze not just Chrysler’s reputation in the auto industry but its workers' future as well. But the globe’s largest automaker could absorb Chrysler and free it from forthcoming troubles. Is General Motors Corp. ready to lift the burning spell on the Chrysler Group?

GM has been reported to be engaged in talks with Daimler Chrysler AG for two months now. The said talks concern the potential purchase of GM of the Chrysler Group, Daimler’s American auto manufacturing division. This information was unraveled by people familiar with the talks but had requested not to be named. According to them, the first talk happened in December when GM Chairman Rick Wagoner and DaimlerChrysler Chief Executive Dieter Zetsche met in Detroit to tackle about the idea of GM acquiring Chrysler from its German parent company.

While a deal is far from certain, at least four meetings have taken place involving Wagoner and GM's chief financial officer, Fritz Henderson, and Zetsche and DaimlerChrysler's CFO Bodo Uebber. Talks are said to be ongoing, primarily between Henderson and Uebber. When asked about the previous discussions, both companies refused to comment.

According to the people familiar with the talks, “The underlying rationale for the deal is the need for major consolidation in the intensely competitive American auto industry.” GM is said to be interested in absorbing Chrysler's revenue, production capacity and brands, while slashing duplicative labor expenses, overhead and management.

DaimlerChrysler is also expected to cut its union with the Chrysler Group. The merger between Daimler-Benz AG and Chrysler Corp. occurred in 1998 and this year, the said coupling is expected to be facing an opportune divorce. The anticipated acquisition of Daimler and GM could eventually result to slashing the Big Three to a Big Two, with only GM and Ford Motor Co. as survivors. With plentiful of Detroit automakers that have existed in the 20th century, only GM and Ford survived. This means nothing less than supremacy and lingering staying power.

If ever the deal is perfected, Chrysler would exist neither as a subsidiary nor as a company. Instead, its brands, factories and products would eventually become part of the organizational structure of GM. However, experts in the industry are saying that the deal would be frightening and quite risky for both parties. This is because GM is still concentrating on its turnaround plan and it is intolerable to commit grave errors along the process.

"They're not far along enough, in my assessment, to take on something as gigantic as absorbing Chrysler," said Gerald Meyers, a business professor at the University of Michigan and former chairman of the AMC automaker previously acquired by Chrysler.

Wall Street analysts also have doubts whether the deal is clever for GM. "GM already has too many brands that cannibalize each other," added analyst Brad Rubin at investment firm BNP-Paribas. "If you add three more, there's going to be more cannibalization."

According to a source, the deal could take several months to complete. In addition there are still expected bidders that are likely to appear for Chrysler. The latter reported a loss of $1.5 billion last year on revenues of $62 billion; this made the company stagger up until the present time. However, the momentum about a possible purchase is still growing though handled in notable secrecy.

But there are two essential issues that could prevent GM from purchasing Chrysler. First is the price that it has to pay and second, the reaction of the United Auto Workers union.