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October 31, 2008

GM and Chrysler Transaction is the Best Alternative to Preserve Jobs and Cash: Grant Thornton



Photo: 2009 Chrysler PT Cruiser

Grant Thornton LLP's Corporate Advisory and Restructuring Services Group has announced the release of The State of Chrysler report, which, according to it, "Thoroughly examines the company, including its operations, product development, future outlook, strategic alternatives and the hidden value of a potential transaction, including the widely-rumored marriage of General Motors Corp. and Chrysler LLC."

"Chrysler as we know it will cease to exist very soon," says Kimberly Rodriguez, principal of Grant Thornton's automotive practice. "At this point, there are very few options available to either company. We believe a transaction between GM and Chrysler is likely because it would be the most expedient way to protect cash and jobs at both companies. If one or the other company were to fail, we would face a much bigger calamity -- the collapse of the North American supply base and the potential endangerment of all three Detroit automakers and businesses that depend on them."



Photo: GM 2009 Pontiac G5 XFE (United States)

The report finds that under a GM/Chrysler transaction, Cerberus Capital Management would likely receive half of GMAC, GM's financing arm, and keep a percentage of the merged manufacturing entity. There is a strong possibility that the federal government and current company stakeholders will participate in a transaction, with the goal of completing a deal before the presidential election.

More specifically, Grant Thornton's Automotive Advisory experts note the following possible outcomes under a GM/Chrysler transaction:

• Chrysler has 26 model offerings, of which Grant Thornton considers only seven to be core and likely to be retained (56 percent of sales). These include the Dodge Ram pickup truck, core Jeep-brand vehicles and the company's minivans.

• Half of Chrysler's 14 existing manufacturing facilities likely would close. Three already have been announced for closure. A plant reduction of this magnitude would equate to about 12,000 production jobs lost plus another 12,000 administrative positions. Of this amount, a reduction in force of 5,000 has already been announced.

• Hundreds of supplier companies would be impacted, which could result in the loss of an additional 50,000 jobs.

• Dealer consolidation efforts will intensify. Chrysler and GM combined have 22,000 franchises -- half of the total in the United States. However, the combined market share of the merged companies would only be about one-third of today's significantly smaller market for new vehicles.

"Despite the significant number of families that will be impacted, the benefits of combining the two companies are both structural and strategic," Rodriguez said. "From an economic and political standpoint, the new company will likely be viewed as 'too big to fail.'"

GM Holden Barina

Photo: GM 2008 Holden Barina (Australia)

Chevrolet Spark India

Photo: GM Chevrolet Spark (India)

Other benefits include:

• GM is strong in international markets and is increasingly leveraging global vehicle architectures for scale and efficiency. It is a leader in plug-in hybrid technology with the Chevrolet Volt. To this product mix, Chrysler brings seven key models that have been recently redesigned or will be by 2010.

• The new company will be a much more powerful force in the full-size pickup truck segment, displacing Ford as the truck leader.

• The combined company will have more liquid assets, thanks to the cash on Chrysler's balance sheet.

• Significant cost-reduction opportunities will be possible, especially in sales, marketing and administrative functions. Overlapping assets can be sold.

Rodriquez concludes, "On the whole, the combination of GM and Chrysler would certainly create yet another wild ride on the auto industry rollercoaster, where cash and platform position determine the winners and losers."

Source: Grant Thornton LLP


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Edited & Posted by the Editor | 8:01 AM | Link to this Post

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