There is a rumour going around that GM might be buying (2) Chrysler. The rumour was based on something things that Zetsche (CEO DaimlerChrysler) said:

Speculation about the future of Chrysler started earlier this week when DaimlerChrysler CEO Dieter Zetsche revealed the future of the money-losing Chrysler division was being studied, and that the company was open to all options. That could include a spin off, analysts say.

Analysts are saying that GM buying Chrysler is unlikely and more likely the hoopla is about a large SUV that both companies are looking into developing.

Here are the reasons why analysts are saying GM would not buy Chrysler.

The reasons GM would not buy Chrysler far outweigh reasons it would even entertain the notion. GM produces models in every major segment Chrysler does, so Chrysler’s lineup would be redundant. One exception: GM will soon stop making mini-vans, one of Chrysler’s strengths.
GM also has its hands full carving distinct identities for eight brands and keeping them stocked with fresh product. Buying Chrysler would add three more–Chrysler, Dodge and Jeep–plus thousands of dealerships at a time GM is trying to trim its sales network.

I disagree and Business Week has some more insight into this. Business Week is saying that GM does not want to loose the No 1 crown and will do whatever it takes. As per the article GM knows that Proton is a money loosing venture, but many want to remain No 1.

So here is the question; should GM buy another car company or not?

I think the answer lies in a move Carly Fiorina made at HP. When Carly bought Compaq many thought it was the absolute worst move that HP could make. Compaq had very few things that HP did not already do. Yet Carly went ahead anyways. This is very much a similar situation to GM and Chrysler.

Why did she merge Compaq with HP? Her answer at the time was necessity. She was of the opinion that one day the battle of Compaq and HP would be a distraction from the real battle that would face both Compaq and HP. I personally feel she understood globalization that sometimes I feel analysts dont. Sometimes analysts focus too much on a individual country.

I think GM understands that the global car industry is in a pickle. There is quite a bit of upheaval going on. Though you might think it is about Toyota, I say it is not about Toyota.

Do me a favor and think about the word Toyota for a moment. Keep those thoughts and think about Porsche. Were the thoughts identical? I doubt it. If somebody today gave you the choice of one car or the other without any strings attached, which would you choose? I am willing to bet it is the Porsche. BTW one little piece of trivia did you know that something in the order of 70% of all Porsches ever produced are still on the road (don’t know the exact number because I heard this stat a couple of years ago, but it was very high)? Tells you something of the love and loyality of a Porsche owner.

Everybody thinks Toyota is the big gorilla on the block and the car company to worry about. Toyota is the big gorrilla, but they are not the car company to worry about. Toyota is missing one element and that is loyality. Many of you are going to disagree that there are plenty of loyal Toyota buyers. No, what I am talking about is downright love-to-own loyality where even though you might drive X you wish you had Y. When I was a youngster (pre-teen days) love-to-own loyality was a Lamborghini, because at the time Lamborghini was featured in many TV shows, and movies. Of course it did not hurt that Farah Fawcette was stretched across the hood of one. (Male Chauvism emails directed at [email protected])

Toyota does not have the love-to-own loyality that other brands have. Though they are trying with their new hybrid vehicles. Toyota is taking advantage of the current global warming trend and people across the world are saying, “oooh look how clean Toyota is.” EVEN though Toyota just introduced a monster pickup that pollutes with the best of them. The point is that Toyota is buying loyality, because I think Toyota knows as well there is a new threat on the block.

The new threat that both Toyota and GM see is China! Right now China is a non-issue. But wait in ten years. China will be able to deliver the quality at a fraction of the price. NOBODY on this planet will be able to compete against the Chinese automakers. The Chinese car makers do not have down to the love-to-own loyality, and thus if you buy a Chinese vehicle it will be for cost and quality. The Chinese car makers will eat Toyota’s lunch, and dinner, and breakfast!

All of the car companies will not be able to compete against the Chinese car companies using quality or price, and that is a major threat. Look at what the Chinese textile industry did to the local textile industry in any of the countries of this planet? Or how about electronic parts? The Chinese manufacturers take no prisoners.

So how do you compete against this threat? You can capitulate, but that is not an option for most managers. In the case of GM in two ways. Remove domestic competition like HP did, and buy something that people have love-to-own loyality to.

Chrysler is the perfect match to GM because of the following brands:

  • Jeep has an extremely loyal base. There are people (like me) who will explicitly buy a Jeep because it is a Jeep. As GM already owns Hummer, buying Chrysler would give them a virtual lock-in to the real 4×4’s on the market.
  • Viper which is one of the two ultimate American sports vehicles. Since GM owns the Corvette, owning the Viper would give them the two internationally accepted sports vehicles that are from America. NOTE: I once drove beside a Viper on the autobahn, WOW! I was doing about 140 MPH and it was well way faster than I. It seemed like I was standing still. The Viper and Corvette are accepted by German car enthusiasts as REAL sports cars.
  • Mini-van which is a mainstay product for Chrysler. The Minivan is an accepted vehicle type by everybody throughout the world. And Chrysler is the champion of this vehicle type.

These three brands are known throughout the planet and accepted. Using these three brands GM could boost their own position. This is why I think GM does find Chrysler very interesting and I would not be surprised if GM were to take the plunge and buys Chrysler.

NOTE: So if Chrysler is so interesting why is DaimlerChrysler interested in dropping them? Using my arguments of the Chinese car maker threat Daimler wants to go back to what they do best; Mercedes and Mercedes Trucks.