Monday, October 27, 2008
GM and Chrysler - Merger, Government Intervention, or Bankruptcy
The Wall Street Journal has a front page story this morning outlining three possible options for General Motors and Chrysler: merger, government intervention, or bankruptcy. Some combination of the first two is also apparently an option. I understand the rationale for a merger, but I have my doubts. The potential for massive cost reduction synergies does exist here, but the key question is this: Can the two firms actually realize these synergies quickly enough to save the companies from bankruptcy? How complicated will the merger be, and does the complexity of integration take the firms' eyeballs off of actually running the business and trying to improve customer satisfaction? Merging two sick giants is not the typical path to success. As an investor, I would be very cautious about believing in the rapid synergy arguments that executives are likely to put forth as a rationale for the merger. For a cautionary tale, we need only look at the disastrous results for shareholders a decade ago when Daimler acquired Chrsyler.