How a Bankrupt GM Should Merge With Chrysler

Yesterday I sketched out a possible financial plan for how GM might be restructured within bankruptcy. Today, Andrew Ross Sorkin provides the other side of the coin — the operational side of things. Which, in his plan, includes a merger with Chrysler:

The merger should reduce costs by as much as $7 billion. But that’s not the tough stuff. The harder decisions are these: Both companies would have to jettison brands — lots of them. In the case of G.M., frankly, the only ones worth saving are Cadillac, Chevy and Buick. (Buick? Yes. Despite its lackluster sales and fuddy-duddy image in the United States, it’s a huge seller in China.)

That means Saturn, Pontiac, GMC and Saab would all disappear. Deutsche Bank estimates that reducing G.M.’s brands from eight to three would bring down the company’s cost base by $5 billion annually. If you’re able to shut the dealerships too, lop off another $4 billion. Chrysler is an even sadder situation: the only brand with any value is Jeep. Its Dodge Ram truck lineup could be merged with Chevy, which would also pick up pieces of the GMC business. And Chrysler’s minivan business could be combined into the Chevy brand as well.

In all, the 35 plants of G.M. and Chrysler would probably be cut by half.

If Buick’s big in China, it should be sold to China. There might even be a buyer out there for Saab, too: Jaguar was worth something, after all. But the rest of this makes sense. The hardest cut to bear would be the Chrysler brand, but that’s the fate of many a storied marque, to disappear.

I like this plan, since it’s realistic about the future size of the US auto industry (two firms rather than three, for starters) and has a nonzero chance of actually being successful. Which might be a low bar to set during better times, but these days would count as something of an achievement.

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