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Monday, September 18, 2006

Ford And GM Will Never Merge (GM)(F)

Automotive News reports that senior management at Ford and GM have discussed a merger or joint venture to help pull the companies out of the difficult situation each has faced with falling market share and bloated costs.

It will never happen. A Ford merger with GM would probably elimate some models that duplicate on another in zize and performance. Taking models out of either company's model line is likely to drop the combined share of the companies even further, as each model adds something to share even if its sales are modest.

But, more important, the UAW would see a merger as a sign of financial health as auto design and general and administrative costs were cut. A better P&L based on costs savings is just what the UAW needs to make the case that a healthy company can afford to pay workers premium wages, benefits, and retirement costs. Part of the leverage that GM and Ford have is that their troubles force the UAW to consider a loss of a huge portion of their jobs if either company fell into bankrupcy.

As Nissan and Renault try to negotiate an alliance with GM, talks with Ford, which is badly damaged by a 17% North American share, which the company says could drop below 14%, are unlikely to move its larger rival to combines businesses.

GM is better off alone with its annual costs down $9 billion a year and its stock price up 60% sine the beginning of 2006. And, GM management knows it.

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