UPDATE 2 (After being rebuffed by Ford…): GM to merge with Chrysler?

According to the NYT, a merger is being discussed (among other possibilities).  It’s not a long article, so please just go read it if you’re interested.  Otherwise the headline/post title is all you need.

My gut reaction: I’m excited.  I wondered if the troubles of the automakers might be addressed too late or just poorly while we’re still at constant risk of systemic collapse.  And at the rate GM is burning through cash, I wondered how the company might survive if the Volt were to be delayed or should make a smaller splash than everyone seems to expect it to make (I think there is pent-up demand for a decent American car, and the Volt, even at the fairly high price point of $40k+ USD, albeit with a TARP-assisted $7,500 tax break yet to be factored in, would attract buyers from the middle to the upper-upper-upper class interested in showing their patriotism and support of American ingenuity).

I don’t have a great idea of how Chysler benefits.  I stopped thinking of Chrysler some time ago, and expected that it would not survive for many more years down the road.  There design team has created a number of cars that Americans seem to love (non-caucasian Americans seem less enthusiastic in my informal surveys).  GM’s styling has been strong as well, so I don’t see that as a potential major contribution to a GM-Chysler entity.  Only Ford has consistently failed every styling test.

The NYT closes its article with a very broad summary of the likely benefits of a merger:

“But the marriage of G.M. and Chrysler has far more potential than hitching Chrysler to a foreign automaker. While G.M. and Chrysler may be hamstrung by labor contracts from cutting jobs, the two companies could combine dealers, product lines and advanced vehicle technology.”

Better to save the company and half the jobs then lose both companies and all the jobs, I suppose.  Of course, if the Volt disappoints, this may only delay the (honestly, I feel it may be deserved) end of the US automotive manufacturing industry.

UPDATE:

Mish expands on the subject (including comments about Ford) with more numerous sources, and some interesting information about the lending climate for automotive dealerships (people often overlook the reliance on credit for dealerships to find buyers through financing, as well as credit required to hold inventory on the lot beyond the typical day-to-day costs that operate on credit in most businesses).

Mish’s last statement in the post is particularly interesting and news to me.  I do wonder how the unions would operate given that the worst-case (or even likely) scenario without a merger must be both bleak and clear to most in the automotive manufacturing sector now.

“The merger may help some efficiencies, but union rules seem to prohibit what most needs to be done, and that unfortunately is eliminating a lot of jobs and excess capacity.”

Outside of manufacturing, the dealership model could be made greatly more efficient through a merger (I do not believe the dealership employees are unionized) and head office / corporate staff could likely be cut as well.  Even with this (to me) revelation that unions could effectively stop the shrinking of GM-Chrysler’s manufacturing base, I still see many positive results from the potential merger.  And with both companies facing a potential collapse, it would appear they have few real options.

UPDATE 2:

A new NYT article exploring earlier merger talks, now ceased, between GM and Ford.  Referring to the ongoing GM-Chrysler deal:

“People with knowledge of the talks described the chances of a deal as “50-50.””

And a very important bit of disclosure:

“For G. M., which lost $15.5 billion in the second quarter alone, the strategy for survival appears to center on pursuing a mega-merger.”

Which sound strange since the previous NYT article indicated GM was losing over $1 billion per month.  $15.5 billion in a quarter is substantively higher… From the originally-referenced article:

“The automaker had $21 billion in cash on hand at the end of the second quarter, but it was burning through more than $1 billion a month.”

I’m not sure what accounting issues or losses negating taxable income during a profitable past might have to do with things, but that sounds to me like GM would be out of cash by Spring 2009.  Unless we can expect the 2nd half of 2008, and the start of 2009, to be significantly better for GM than the 2nd quarter of 2008 has been.  And I do not see any reason why that would be the case unless they start taking Volt pre-orders a year before delivery, which I would be very interested to see the results of.

… and the cow goes moo