DETROIT — Merger or no merger, General Motors, once unassailable in corporate America, is vulnerable.
Not because of the precipitous drop in GM’s valuation last week after the wild ride on the financial markets — at one point GM had lost $7 billion in market cap in seven days.
And not because a controlling interest could have been acquired for a cool $23 billion, or just over half GM’s $45 billion market cap.
No, the really bad news for GM: A dragon stands again at the gates. And he’s wearing a black sweater.
To talk again about a GM-FCA merger “and publicly reload the idea,” said analyst Arndt Elling-horst, “clearly Sergio Marchionne is taking out the bazooka to hunt GM down.”
There’s a hot storyline simmering in a city where the scent of some kind of deal won’t fade.
Fiat Chrysler and General Motors.
A tale of two actors who: a) aren’t very fond of each other; b) don’t, in any way, see the same benefits of being hitched; and c) are being paired together, just casually enough that you could start to convince yourself anything could happen.
And it might.
It’s a courtship so one-sided that in some jurisdictions Marchionne would probably risk an arrest for stalking.
But it’s not dating. It’s not even consensual talking.
In fact, GM and FCA can’t agree on whether they even want to meet face to face.
Sounds like perfect conditions for a merger, doesn’t it?
The fact that we are even talking about this, and that it hasn’t been dismissed as just another Detroit rumor, is testament to March-ionne’s determination — or desperation, take your pick.
But his play is no longer a high-level, cerebral hypothesis for Wall Street.
His latest chess move, delivered to Automotive News over espressos and multiple e-cigarettes at the top of his downtown Chrysler headquarters in August, is either posturing for a richer deal with another group (Volkswagen?) or a last-ditch attempt to force at least a discussion with GM, if not a deal.
Either way Sergio is not fading away.
GM sees only the downside to an FCA tie-up because Marchionne’s company adds zero shareholder value, perhaps less.
Marchionne says he has spent “months” studying the synergies that would result, analyzing the plants, the engines, the opportunities — even running the numbers from GM’s perspective.
Two parties have never looked better together, he said.
And that’s where this deal/no-deal hits a pothole.
The bottom line: These companies just see the world in drastically different ways.
Even though GM officials admit to not having seen Marchionne’s number crunching, they are adamant: They have as much interest in Marchionne as they do another trip through bankruptcy. GM’s management and board spent two months dusting off the old GM-Chrysler deal book and believe the current idea is rife with distractions, cultural complications and overstated projections of profitability.
A merger with FCA is a “risk-creation activity” in which the costs and risks are all up front and the benefits and payoffs backloaded.
Under that microscope, the idea was rejected, flat out.
GM’s play is simple and, for GM, wonderfully focused for a change.
GM’s leaders have made the plan clear: Play in markets of choice, instead of blanketing the world
($1 billion in India, for example, and a pullout in Russia). GM will invest in future mobility solutions, product pipelines and better customer experiences. And multiple quarters of growth suggest it’s on course.
Frankly, the only merging GM is interested in involves the consumer and the car.
But a mashup with FCA?
Been there, tried to combine that.
Product gates don’t line up. Software systems need to be redesigned.
“There is the potential for friction, cost and then you layer in the cultural differences and the fun really begins,” a high-ranking GM executive said recently.
Yet Marchionne is undeterred.
And the fact he’s trying to line up allies takes the play to a new level given the market conditions.
He’s quick to say that two critical constituencies — dealers and UAW workers — won’t be impacted and might actually benefit from a merger of FCA and GM.
Without a deal “we end up staring at an ugly industrial machine that keeps chewing up capital,” he said, “and we live in perennial terror of just getting something wrong or something going sideways.”
And so the dating game goes.
The preferred outcomes are as different as the two corporations themselves.
One is a financial creature with a culture steeped in a belief that it will always be the biggest and the best. The other is an Italian-American mishmash that pulled back its curtain in 2009, laid out a seemingly impossible business plan and then somehow pulled it off.
But here’s the deal about the deal: It’s heating up. The conditions are ripe.
Have no doubt: The game is on.
Marchionne is motivated. GM isn’t.
And at the gate, the dragon waits.