Monday, February 26, 2007

Chrysler, GM deal would hit area hard

Tuesday, February 20, 2007
Chrysler, GM deal would hit area hard
If purchase happens, thousands of white-collar jobs would be at risk.
Christine Tierney, Josee Valcourt and Sharon Terlep / The Detroit News

If General Motors Corp. takes over the Chrysler Group from DaimlerChrysler AG, the result is likely to be wrenching for Michigan: Thousands more jobs could be lost as a new auto giant eliminates redundant positions.

Talks between GM and DaimlerChrysler are still in the early stages, say people familiar with the situation, but industry experts are deeply skeptical about a pairing of two companies with such similar product lines.

"If the two combine, in my mind, it's insanity," Gerald Meyers, a business professor at the University of Michigan, said Monday. "With the exception of their international operations, the companies duplicate each other."

Such a deal is likely to cause hardship in the short run, some economists said, but it could result in a strengthened U.S. auto industry if more plants are closed to eliminate excess production capacity. That has been at the root of the U.S. auto industry's troubles.

"What Michigan needs at the moment is a strong domestic auto industry," said Lou Glazer, president of Michigan Future Inc., an Ann Arbor think tank studying work force and economic trends. "If this gets us there, that's more important than anything that will happen in the short term."

The ongoing talks began in December when DaimlerChrysler CEO Dieter Zetsche and GM Chairman Rick Wagoner met in Detroit, according to sources.

But with neither company confirming that talks are under way, Chrysler's employees, dealers and suppliers are struggling with rumors and uncertainty.

"Whether or not anything comes of the negotiations, Chrysler has been told it's in play. All 80,000 people [at Chrysler] know they're not wanted," said Meyers, former chairman of American Motors Corp., which was acquired by Chrysler in 1987. "That has a severe effect, not only on morale but on the whole operation."

Talks shake dealers

Carl Galeana, president of the Galeana Automotive Group, which has Dodge and Chrysler dealerships, says he felt like a part of DaimlerChrysler. "I've always been extremely loyal to Chrysler Corp. and DaimlerChrysler. It's kind of like being a kid and having your parents talk about getting rid of you," he said.

Together, DaimlerChrysler and GM have more than 10,000 U.S. dealerships. They employ nearly 130,000 hourly workers and around 50,000 salaried staffers. Nearly half their combined work forces, or around 94,000 people, are in Michigan.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said he did not believe a GM-Chrysler combination would affect the rate of decline in U.S. factory workers. He expects that number to keep shrinking.

"With or without these mergers, we'll see continued restructuring," Cole said. "We have to get better aligned between profitable sales and production."

On the other hand, a GM-Chrysler deal is likely to accelerate white-collar cuts. "That's where you get your economies," Cole said. For instance, "you don't need two economists."

Many seasoned auto executives in Metro Detroit risk losing their jobs if GM takes over Chrysler, said John Slosar, a head hunter and CEO of Triniti Executive Search in Novi. "You're going to have to pare out duplication in every function -- finance, human resources. An awful lot of people are quite concerned," he said.

But Slosar said "it's plum pickings for the transplant market" -- mainly Asian-based carmakers with growing U.S. operations.

With thousands of high-paying jobs and the Chrysler headquarters operation in Auburn Hills in jeopardy, the local housing market and business community could face more tough times.

People familiar with the GM-DaimlerChrysler talks said they expect Chrysler will interest other automakers and private equity firms.

DaimlerChrysler shares rose 3.6 percent Monday in Frankfurt, closing at $73.88, a six-year high. They have climbed steadily since Zetsche announced last week that DaimlerChrysler was considering all options for Chrysler, which it acquired nine years ago. J.P. Morgan, which is handling the sale negotiations, is expected to have a sale prospectus ready as early as this week.

Hyundai isn't interested

Several newspapers have reported that Hyundai Motor Co. might bid for Chrysler, but a spokesman for the South Korean automaker told The Detroit News that Hyundai was not interested.

Analyst Brad Rubin at investment firm BNP Paribas said he did not expect the leading Asian automakers -- Toyota Motor Corp., Honda Motor Co. or Hyundai -- to bid for Chrysler. "I don't see any Asian carmaker having that much interest because everything would be unionized," while their U.S. operations are non-union.

However, Rubin believes the Renault-Nissan alliance headed by Carlos Ghosn might be interested. "They were already looking to grow."

Ghosn, CEO of both Renault SA and Nissan Motor Co., has expressed a desire to add a North American partner to the Franco-Japanese alliance and held talks last year with GM.

But Renault-Nissan insiders say the alliance has not been approached by DaimlerChrysler.

The fact that GM and Chrysler are American companies may increase their compatibility, said Evaristo Garcia, president of U.S. headquarters of JATO Dynamics, an auto research firm based in Britain. "In Chrysler, you have an American company coming out of a German culture shock," he said. "Trying to meld that with a European and a Japanese company would be difficult."

A GM-Chrysler deal would cement GM's position as the world's biggest automaker, putting it far ahead of Toyota.

"Maybe this is (a) way for General Motors to go from 25 percent share to 39 percent share" of the U.S. market, said John Schenden, general manager of Pro Chrysler-Jeep in Denver, Colo., and head of Chrysler's national dealer council.

"Is this a tactic for UAW negotiations?" he said, referring to the upcoming contract talks with the United Auto Workers. "Like I told my people, it's out of our control. We have to just worry about our day-to-day of selling cars."

Industry specialists say a mega-combo might turn up the pressure on struggling U.S. auto suppliers, who already are dealing with high raw material costs and pricing pressure from automakers.

"I would think the merger would be disastrous for suppliers," said John Henke, president of Planning Perspectives Inc., a Birmingham firm that tracks automakers' relations with suppliers.

You can reach Christine Tierney at (313) 222-1463 or

© Copyright 2007 The Detroit News. All rights reserved.


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