NYU Biz Prof: GM-Chrysler Deal Would Be "Disastrous"

• The Find: GM and Chrysler are moving towards a merger according to news sources, but at least one expert sees the deal as a disaster in the making.
• The Source: The blog of Robert Salomon, associate professor of management at Stern School of Business, NYU.

The Takeaway: There’s no doubt American car manufacturers are suffering from a double whammy at the moment: high (though currently decreasing) fuel prices making their best selling SUV behemoths less appealing and the credit crunch limiting consumers ability to secure car loans. So, in some ways, a merger makes sense to Salomon:

By coming together, the two firms figure that they can rationalize operations, reduce industry capacity, and gain some pricing power. This type of strategic rationale can work, as there is no quicker way to gain market share and increase pricing power than to remove a direct competitor.

Still, Salomon’s final verdict on the deal is Ugh! Why? To start with, he disagrees with the general principle of two failing firms equaling one healthy one. “You generally end up with managerial attention diverted to a complicated integration, and away from what they should be doing in the first place — managing the individual businesses to make them healthy,” he declares.

Think eliminating the the overlap in their product portfolios will mean big savings? Salomon is skeptical here too. “This integration will cost far more than either can imagine.” Instead of entangling themselves in a merger, Salomon suggests an alternative to floundering GM: “why not wait until Chrysler goes bankrupt? That accomplishes the same thing without the trouble of the integration.”

BNET has much more insight on the travails of the American auto industry, for those looking for more further analysis.

The Question: Is a GM-Chrysler merger a good idea?

(Image of gas guzzler by brianc, CC 2.0)

This post first appeared on the BNET blog BNET1.