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The rewards are huge—but so are the obstacles. (http://www.businessweek.com/bwdaily/dnflash/content/oct2008/db20081017_939535.htm)

http://www.cleanmpg.com/photos/data/501/GM_Wagoner_CEO.jpgDavid Welch – Business Week – Oct. 18, 2008

GM's Wagoner steering a Titanic?

Financial manipulation may work but neither company can sell products for a profit? -- Ed.

As top executives at GM and Chrysler owner Cerberus Capital Management continue to talk about a merger, the most popular scenario at this point would still have all three companies joined at the hip.

… The basic outcome has GM folding Chrysler's auto business into its own while Cerberus would merge lending arm Chrysler Financial Services and GMAC Financial Services. Cerberus owns 51% of GMAC while GM owns the rest.

If that deal goes through, GM would end up owning a minority piece of the merged finance company and Cerberus would still have a stake in GM…

A Win-Win?

… The merged car company would have a dizzying 11 brands to manage and more than 10 million vehicles in global sales a year with automotive revenue of roughly $220 billion.

GM executives think they can benefit from Chrysler's cash and revenue, while cutting thousands of headquarters jobs and overhead to create a profitable revenue stream… http://www.businessweek.com/bwdaily/dnflash/content/oct2008/db20081017_939535.htm

Ok... I think this is a bad idea, since both companies are in terrible financial condition. But here's what they need to do IMHO is the deal does go through:

1. Jettison a LOT of the brands. Reorganize the brands as follows: Pontiac (sports cars), Chevy (mainstream cars, small SUVs, hybrids), Cadillac (luxury segment), Jeep (rugged 4WD segment), Dodge (utility trucks). Get rid of Hummer. Merge Saturn back into Chevy. Re-badge the heavy Chevy trucks as Dodge. Re-badge to Dodge sports cars as Pontiac. Basically, make it so a buyer knows what he's going to get when he/she shops for a particular brand. Also, get rid of "duplicate" vehicles in which the same car has 2-3 different brands attached to it. That extra cosmetic finishing eats money. Finally, figure out which cars/trucks sell and which ones don't. Any vehicle with more than three years of double-digit declines should be discontinued.

2. Combine the government bailout loans and use the money WISELY. This is taxpayer money and it should be used with a modicum of respect and prudence. Figure out what factories can be economically upgraded and sell the ones that can't. Use the money for infrastructure improvements and R&D. Do NOT use the money for additional executive perks and bonuses.

3. Figure out which executives are redundant. There is no reason to have two sets of executives that get hundreds of millions of dollars per year per person (for doing a lousy job). Keep any executive that has fresh ideas and can still open a door by himself. Get rid of the ones who still think it's the year 1988.

4. Reorganize the dealer networks to be more efficient. For example, a struggling Jeep dealer that's located in the heart of a huge metropolis might prosper if re-oriented as a Chevy dealer. Also, if a potential customer walks into a Chevy dealer and really wants a Cadillac, there should be a way to have that vehicle delivered to the dealer once the papers are signed. Don't make the customer walk out the door without buying a car!

5. Stop wasting money on developing $75,000 luxury hybrids. These vehicles will never sell enough volume to turn a profit. Instead, concentrate on hybrids that can be sold in the $20k-$35k range, since the volume will be much higher and the manufacturing costs decrease dramatically when volume gets into the five-digit range. Gasoline may be affordable now, but you'd better believe that it's a temporary thing. If GM-Chrysler can figure out a way to beef up BAS even a little and make it available as a $1,500 "option" that improves FE by 5-8 MPG on most Chevy cars, they'll have a real winner the next time gasoline prices spike.

6. Suspend all bonuses to all employees (particularly executives) until such a time as the company turns a profit. Make the management earn their pay for a change.

7. Use their advertising budget to undo the psychic poisoning they've inflicted on America. Start showing ads where it's "cool" go go 500 miles between fill-ups and how people who need 450 HP to bring home four bags of groceries are delusional and twisted. Then follow it up with "... and the Chevy Cruz gets 40 MPG. Easy on the wallet, easy on the environment" or some thing like that.

Those union contracts aren't really helping either. Although those European car manufacturers must have higher labor costs than the US car manufacturers so I don't quite understand why this is happening.