General Motors thinks Chrysler’s products could help increase sales as well because boost profits by slashing costs

By David Welch

Watch full size video:

When news first leaked completely that General Motors (GM) was interested in buying Chrysler from private equity confirmed Cerberus Capital Management, the general recoil from auto-industry watchers was: Are they lacking of one’s wits?

Chrysler’s sales are down 30% and the company is loss specie. Its product lineup is loaded with trucks and sport-utility vehicles and its cars are also-rans. The Chrysler and Dodge brands dress in’t have enough strong passenger cars and crossovers. Even the beloved Jeep brand is suffering as SUV sales have tanked.

But on that to a high degree troubled rural scene, some of GM’s top executives see an opportunity. Chrysler, after all, has managed to sell 1.2 million vehicles so far this year, and it reported $1.1 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first half. But the joint concern admits it is still losing money and burning cash. Chrysler had sales of $61 billion in 2006, the last full year for which it was required to report its financial performance.

If GM executives determine that Chrysler can be restructured, they think it could have existence a great opportunity to add sales and a handful of good products while boosting profits by slashing costs. Their plan: Grab the tens of billions in Chrysler revenues, cut overhead costs at headquarters, and book a nice profit.

On essay, it all looks good (BusinessWeek.com, 10/11/08). GM gets a nice part of business and eliminates a competitor from the scene, giving each survivor a shot at more sales and better pricing. The hard part will be getting the unison to accept the cuts needed to get to the profitable return stream that GM covets. To put up to sale the benefits of buying Chrysler to its own board of directors and shareholders, GM would take to build a matter of inquiry that the costs that tend hitherward with buying out thousands of United Auto Workers and winding down Chrysler’s bloated chain of dealers won’t stunt the benefits. Concedes one GM charged with execution: "No deal comes without risk."

GM wouldn’t keep the whole company. The biggest of the Big Three likes Jeep, the minivans, the Dodge Ram pickup, and cars take pleasure in the Chrysler 300. Other vehicles, such as far as concerns example the Chrysler Sebring and Dodge Avenger, or swelling SUVs like the Dodge Durango, could recede from view. GM already has strong products for buyers of those Chrysler vehicles.

But here’s where the strategy breaks down. Getting rid of cars GM doesn’t longing property dumping plants and workers, too. Already, there is union opposition to a deal. Appearing Oct. 14 put on WWJ radio in Detroit, UAW President Ron Gettelfinger said he wouldn’t endorse a GM-Chrysler deal because, "I by bodily presence would not want to see anything that would result in a consolidation that would mean the elimination of additional jobs."