After my post on Ford’s predicament over the weekend I found this story interesting:
DETROIT – Executives of General Motors Corp. and Ford Motor Co. have discussed a possible merger or alliance, the trade journal Automotive News reported Monday. Both companies declined comment.
Automotive News quoted what it said were several people familiar with the talks as saying that discussions involving senior executives began in July and are not taking place now.
The journal quoted one source as saying that GM Chief Financial Officer Fritz Henderson and his Ford counterpart, Don Leclair, discussed a GM-Ford alliance in August.
The report comes as GM and Ford have been slashing their work forces and closing plants in efforts to reverse multibillion dollar losses. Their sales have been hurt by competition from more fuel-efficient models from Asian automakers.
As the two biggest U.S. automakers, any deal would presumably face scrutiny by U.S. antitrust regulators.
This story brings a number of thoughts to mind, pretty much in shotgun fashion.
First, it’s not entirely clear to me how two companies that have been competitors for a century or more would make convivial components of a single company. I’ve seen and lived through any number of large corporate mergers and I’ve never known of an instance of two companies with competitive product lines (and, in the case of Ford and GM, product lines that were designed to be competitive) in which both product lines survived. Generally, the merger took place to allow the dominant component to acquire the smaller company’s customer base or, in some cases, technology, and discontinue the smaller compnay’s product line.
Second, is there synergy between these two companies? I don’t see it. There may be some economies of scale but I think the clash of two different entrenched corporate cultures and bureaucracies will overwhelm any prospective economies. I think that by far the greater likelihood is that the whole would end up smaller than the sum of its part: the combined Ford-GM would lose customers to Toyota or Daimler-Chrysler.
Third, our anti-trust laws were designed for a time in which U. S. companies competed or colluded with each other not against or with foreign competitors which in many cases are directly or indirectly owned by foreign governments. Do they make sense in a global economy?
What impact would the merger have on organized labor? The dealer network? Is such a combine in the interests of the two companies? There’s little doubt that a formula could be worked out such that it was in the interests of top managers. Imagine the salary that the CEO of the combined company could command because of his or her expanded responsibilities! Is such a combine in the interests of the country?
It’s a seriously idiotic idea. Both of these companies have the same kinds of issues, and there is nothing to be gained by combination–I’m sure economies of scale would be claimed, but both these guys have to be way above the flattening-out portion of any EOS curve. And what would be the effect on time-to-market?…I can’t imagine that it would be good.
See my post Mergers, Acquisitions, Princesses, and Toads; also The Costs of Synergy and Synergy or Just Syn?
Thanks, david. I’m familiar with the inner workings of both of these companies first-hand. I’m being mild in my criticisms.
One thing I had intended to mention but somehow left out was the puzzle of how you can take two companies, both of which are suffering from a failure of business model, and make a viable company from the union. These companies need reform not reinforcements.
However, one thing we do need to be concerned about is the likelihood that the joint company would be a formidable rent-seeker. I suspect that’s the real strategy here. Be important enough that you can’t be allowed to fail. The Chrysler bail-out with capital letters and exclamation points.
One thing I had intended to mention but somehow left out was the puzzle of how you can take two companies, both of which are suffering from a failure of business model, and make a viable company from the union.
Other than the hundred years of rivalry, I think I remember this being a criticism of the HP-Compaq merger.
But what about an alliance? GM has some sort of an alliance with Toyota. (or at least used to). I believe Ford had/has one with Mazda and Jaguar. Maybe that’s no more likely to be successful, but the costs likely would be less than those of an outright merger.
It depends on the precise nature of the alliance, I guess. However, an alliance would present many of the same legal issues as an outright merger.
Merger? Can’t see it happening. GM and Ford have utterly incompatible infrastructures. I am not talking just IT, though those are incompatible, too. What is far more important is that their supply chains don’t mesh, their plant floor processes are utterly foreign to each other (a Ford plant, even retooled, could not build a GM product without years of training, nor vice versa), and even their systems of naming locations within a production line are utterly incompatible. Never mind such simple things to solve as keeping dealers from selling competing product lines. It’s not even worth it (to either company) to eat the loss in order to kill the competitor: Toyota would be the winner there.
Joint venture? I suppose that could happen, but I don’t see why it would. Neither company would gain significant technology from the deal, nor methodological improvements, because of the factors preventing a merger from being useful. Worse, a JV would be a constant fight over how to produce a vehicle, as well as who could sell it and even what kind of vehicle it would be.
Some kind of cooperation on union-busting? That I could see. Rumors designed to let someone cash in on stock before it tanks? That I could definitely see.
You state that our anti-trust laws were designed for a time in which U. S. companies competed or colluded with each other not against or with foreign competitors. My understanding is that at the time Rockefeller was assembling Standard Oil his major competition was Russian imports.
The Sherman Antitrust Act of 1890 was largely enacted to allow the federal government to go after large securities companies (who didn’t have much in the way of foreign competition). It wasn’t until 1911 that it was used against Standard Oil. By that time John D. Rockefeller had already bought his domestic competition. It wasn’t competing anymore. That was the whole point. There may have been Russian competition but it was miniscule by comparison. Not like the competition that Toyota, for example, is providing for Ford and GM.