GM, Chrysler Need to Think Change -- Big Change

By Warren Brown
Sunday, February 15, 2009

The precipice offers perspective, presents a clearer view of what must be done. For General Motors and Chrysler, facing a March 31 deadline to prove their viability to the government in order to maintain access to $17.4 billion in federal loans, or fall into bankruptcy, that means the time for timid measures is over.

GM must consolidate its operations.

Chrysler must get real.

If Chrysler truly intends to merge its operations with Italy's Fiat, or with anyone else, Chrysler must choose a partner that is willing to pay for the relationship.

That means Chrysler's proposed deal with Fiat won't wash. In summary, its highlights are these:

Fiat gains a 35 percent share of Chrysler through what essentially amounts to a technology swap. Fiat gives Chrysler the technology to build the small, fuel-efficient cars it needs to stay alive. Chrysler gives Fiat access to its truck business, which would serve Fiat well in the United States when, presumably, the country rolls out of its current recession.

Fiat would have the option to buy another 20 percent of Chrysler for $25 million -- effectively giving Fiat 55 percent of Chrysler -- for $25 m-m-m-illion!

I'm nobody's financial genius. But I'm nobody's fool, either. U.S. taxpayers are on the hook to Chrysler for $4 billion -- that's billion with a "b." (GM, with $13.4 billion, got the lion's share of the federal money loaned to domestic car companies so far.) Chrysler reportedly is seeking several billion more in U.S. government loans to help seal the deal with Fiat.

My fuzzy brains say that doesn't make much sense. We loan Chrysler billions. Fiat gets Chrysler for millions? I don't think so. Fiat will have to do better, or Chrysler will have to find a partner with a substantially better dowry, or, regretfully, take that long-awaited trip to bankruptcy court.

It pains me to write this. But it is what it is: Chrysler's survival depends on finding a well-endowed partner that is willing to pay more than $25 million for a controlling share of Chrysler.

GM's survival depends on doing what GM, in fact, has been doing for a while. And that's streamlining its operations.

That hurts, too. But there's no getting around it.

I am a great admirer of Jill Lajdziak, general manager of GM's Saturn Division. She has fought the good fight, greatly improved Saturn's manufacturing efficiencies and product quality, and expanded the division's product offerings.

Ironically, Lajdziak's success is why Saturn must now be folded into Chevrolet.

The truth is that Saturn was established in 1985 for the sole purpose of shaking up GM's middle management, shocking it into the realization that GM is a car company, that GM's original rise to greatness was wedded to great products and great customer service.

Saturn was the brainchild of the late Roger B. Smith, a GM chairman with the persona of a Main Street banker who was determined to prove that GM could design, sell and service good cars -- even if he had to start another GM company to do it.

In that regard, Saturn served its purpose. By any objective measure, GM's overall product quality is now world-competitive. Customer handling at most GM dealerships has been "Saturnized" -- meaning that most GM customers nowadays are likely to be treated with respect and common sense in GM dealerships. Saturn worked.

But Saturn's product offerings are no different from what can be found at a lower price at Chevrolet. Saturn has no distinct personality in the marketplace. Chevrolet does. There is no real reason Saturn should continue as a separate entity.

GM's Hummer division, too, should get the boot. It was fun while it lasted. But that party is over. Besides, GM has two very strong truck groups -- pickups and sport-utility models -- within Chevrolet and GMC Trucks.

Hmmm . . . GM might want to consider merging GMC Trucks into Chevrolet, too.

GM should sell Saab, its Swedish luxury marque, as quickly and as profitably as it can. Given the growing prestige of its Cadillac luxury group, GM no longer needs Saab.

As for Pontiac and Buick, GM should let them stay, albeit as smaller, more niche-oriented versions of their current selves.

None of this will be easy. So-called "dealer day in court" state laws make consolidating vehicle divisions and closing the dealerships that go along with them a costly, complicated business in the United States. But it will have to be done. After all, bankruptcy isn't pretty, either.

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