The Big Number Two

The latest bad news of yet another setback washed over the state, a dark ominous cloud that sucked away all light and hope.

No, I'm not talking about Michigan's latest defeat although, trust me, that was pretty devastating, too.

I'm talking about the rumors that the Big Three might soon become the Big Two. Chrysler and GM apparently in talks about a merger. And when those rumors are plastered all over the front page of every newspaper in the region, they're probably more than a bit credible. It seems like, today, those stories are being walked back but I have no trouble believing that the two auto-giants were holding at least preliminary discussions or even that they leaked a trial balloon to gauge the reaction.

Judging from what I saw and heard, that reaction was generally poor.

Basically, rather than being a typical merger where one party is buying the other, the deal that I heard proposed was more of a swap. Chrysler, in the wake of their disastrous experience with Daimler-Benz, was bought up by Cerberus. Employees were then required to wander around talking about the Void of Woman and bitching about their divorces. No, wait, that was Cerebus. Cerberus is an investment firm that specialized in taking underperforming companies out of bankruptcy. They picked up Chrysler for pennies on the dollar and hoped to do the same with the fading auto-company (Who, really, have no one to blame but themselves for their current predicament. Whine about the unions and rising health care costs all you want but the company still bet its fortunes on the Hemi-engine while doing everything they could to stave off increases in fuel-economy or the development of alternative energy sources. And now that gas prices are going through the roof and people are starting to turn to greener pastures, those decisions are coming home to roost. But, of course, they're “too big to fail” because that's American capitalism for you – privatizes profits and socialize risks. I'm sorry, where was I?).

Now, it seems, they've realized that auto manufacturing is a giant pit of money and agree with the general consensus that at least one of the Big Three car-makers is going belly up within the next decade. My money's on Ford but Chrysler is the leading favorite. And Cerberus would rather not be on the deck of that ship as it's sinking to the ocean's floor.

So, they offered GM a deal. They'd turn over their production operations, their assembly lines, their plants, their workers and officials, their designers and their designs to GM (Who are in trouble but are still the strongest of the US auto-makers.). In return, GM would sign over the rest of GMAC to Cerebus. No, Cerberus. Dammit, I did it again – I don't even like David Sims and his self-indulgent tripe.

GMAC is or, rather, was the financial arm of GM. It gets more complicated than that what with spin-offs and subdivisions and all but, basically, for a long time what kept GM profitable wasn't their ability to sell cars but, instead, their ability to sell loans to those buying the cars. That part of their business conglomerate was GMAC – they'd also branched off into other financial business like mortgages and insurance (Gee, wonder hw that's working out for them lately?). Since about 1920, it's been a substantial money-making part of the GM empire. A few years ago, mega-investor Kirk Kerkorian, though, pressured their management to sell it off and give the struggling auto-maker a huge inflation of cash. Some $14, $15 billion dollars. Which used to sound like a lot of money (Sigh. I'm going to rant about the bailouts again, I just know it.).

Who did they sell it to?

Cerberus.

Cerberus bought up a controlling interest or 51% of GMAC from GM proper. Only a few years after they'd bought out Chrysler. With GM keeping the remaining 49% for themselves.

Now, what's happening is that Cerberus wants to trade Chrysler for that remaining 49%. Giving them, basically, the auto-loan business and GM the auto-making business.

Cerberus gets out of car making entirely, cutting its losses and becoming an even bigger playing in the financial industry. Which might not be such a good thing right now but, as I understand it, GMAC is a fairly solid company that could get stronger in the hoped for, eventual rebound of our economy.

Meanwhile, GM and Chrysler combine into a super-massive car company that would hope to achieve large savings by streamlining itself and removing redundancies. In other words, they'd be shuttering plants and laying off workers and even folding up entire product lines – the company would have Dodge and Pontiac and Chevy and Buick and Hummers and Jeeps and about a half-dozen brands too many, really, all competing for the same market space.

I'm not really sure what GM gets out of such a deal except, perhaps, the Jeep brand. But the net effect that it would take two large companies with big problems and combine them into one great company with even bigger problems. Because, most of those problems are environmental and not structural and most of those problems are the same. Adding the two together doesn't emphasize their strengths it maximizes their weaknesses. Too many cars, too many of the wrong cars, too many plants, too many workers, too many bad legacy contracts and obligations weighing them down, and on and on the list of the auto-maker's woes goes. There simply isn't enough in savings to be gained by trimming any fat to be worthwhile. Not to mention that any trimming is going to be a huge headache – it's not like the unions are going to sit back and let them do whatever they want. Or that all their suppliers are going to be perfectly fine with their business being cut back, either. It won't be long before someone involves the courts. And it'll drag out, sucking away time and energy, and end up being a huge headache.

Meanwhile, a lot of people will be losing their jobs. Especially around Detroit where the white collar workers in these company's headquarters will be among the first to get the axe. We really don't need to lose more jobs around here. The rest of the nation's economy might not be doing very well right now but, in Michigan, it's even worse.

Then again, having one of these car companies go under is going to cost a lot more jobs than having them merged would. So it's hard to say anything except that it looks like more hard times ahead, either way. At the moment, though, I pretty much think the merger's just so much smoke and mirrors and, maybe, just a way to get the federal government to open up its purse strings a little bit more.