Indecent Proposal? What a Ford/GM Merger Could Mean

Sept. 18, 2006 — -- Times are so tough in the American auto industry that the country's two biggest nameplates have actually talked about a massive combination. Reports out of Detroit suggest that GM and Ford had discussions about the possibility of a merger or alliance.

"It's a joke, there's no real meat on that bone," said Kevin Tynan, senior auto analyst at Argus Research Company. "They need to get smaller, not bigger. They need to be more flexible, not continue in their old way of doing business."

But the tantilizing possibility of a mega merger has many industry experts rubbing their eyes in disbelief, wondering if these two icons could actually find a way to marry, and if they did, how that would change the auto industry landscape.

"Does it become General Ford? Gord? Ford Motors?" asked Karl Brauer, editor-in-chief of auto web site Edmunds.com. "That's actually one of the strengths of a merger -- they'd be combining two of the world's most recognized brands."

Combined, Ford and General Motors would be a force to be reckoned with.

Based on their most recent sales reports, a merged company would have accounted for more than 4.6 million cars and trucks sold in the United States so far this year. That's an astounding 41 percent of the U.S. auto market and almost three times the size of Toyota's slice of the auto pie.

That new sizable company would have leverage with suppliers that neither has enjoyed for decades. Experts say a combination could allow for better deals on everything from steel components to tires, air conditioners to ad time.

But in this case, size doesn't necessarily make for success in the car business.

Today the companies are too big, with expensive plants that are not running and thousands of union workers they have to pay even when they do not need them. Combine that with the financial burden of pensions and providing health care to workers and their families, and you see that size can, in fact, hurt a company.

"Even if a merger happened, they'd still face these costs," said Brauer. "Becoming a single company doesn't reduce their obligations to the UAW or their health care costs. Unless they made these issues a part of the alliance negotiations and included the unions in whatever deal they struck."