Analyst: Chrysler merger would reach Kokomo

john.dempsey@kokomotribune.com

A leading automotive analyst believes the upcoming weeks could bring some interesting changes in the automotive industry.

The chairman of the Center for Automotive Research in Ann Arbor, Mich., David Cole, believes the discussions between General Motors Corp. and Cerberus Capital Management over a possible Chrysler LLC sale will continue to heat up interest in the industry.

"I think things will unfold fairly rapidly in the next couple of weeks," he told the Tribune.

"Clearly, Cerberus is not wanting to be in the automobile business."

And while Cerberus is seeking to obtain the final 19.9 percent of Chrysler that Daimler owns, he believes that is just a technicality.

"Obtaining Daimler's piece of Chrysler would clean up the finances for Cerberus," Cole said.

A GM-Chrysler merger could lead to definite changes in both companies and in Kokomo, he believes.

"If they would come together, even if didn't affect the whole company, you would see some real consolidation of products," Cole said. "We think there is a good chance that the huge transmission complex in Kokomo would be affected and that it could be quite vulnerable.

"Nothing would happen instantly. But, as products are consolidated and production lines are taken out, you could end up with dramatic changes in a year or so. The engineers could come up with other products, but you could be certain things would not stay the same."

Yet it might not just be a total General Motors takeover.

Wednesday, The Associated Press reported Cerberus, a private equity firm, would consider selling Chrysler in pieces, something Cole feels is a very distinct possibility. Nissan Motor Co. has also been named as a possible suitor.

"You could potentially see an idea of three parties coming together. There are things GM would benefit from and things Nissan could benefit from," he said. "It could potentially represent the carving up of Chrysler."

Nissan, he says, may be "very interested" in the Dodge Ram truck line.

"Nissan would consolidate the truck plants and it could use about 1,000 dealers," Cole explained. "GM would like to have the minivans and Jeep."

If Chrysler would be split between GM and Nissan, however, it would help Kokomo because the transmission production would likely remain here.

"Here in Michigan, everyone is worried about the job loss of an consolidation. But, with consolidation, the industry gets pricing power it hasn't had in many years," Cole said. "It's a double-barreled positive.

"If you take capacity out of the industry, it allows you to operate closer to 100 percent capacity. And, it increases the price to consumers because there aren't as many opportunities."

One of the questions that has popped up since the break in the Chrysler-Getrag Corporte Group transmission partnership is where the automaker will find transmissions to mate with its Phoenix engine program.

"I think they have some options," Cole said. "One of the biggest areas of cooperation between GM and Chrysler is in powertrains. There is existing capacity there, and they're coming on pretty strong with the six-speed transmission."

It has been suggested that a seven-speed transmission would be the most fuel-efficient to run with the Phoenix, but Cole believes otherwise.

"The cost begins to escalate dramatically in transmissions. A seven-speed pushes the cost up, but a six-speed is a lot better for fuel savings than a four-speed," he explained. "In the engine and transmission area, it's a very tough place for Chrysler to play right now."

And whether or not Chrysler remains as a separate entity, Cole believes the Big Three could form a consortium to build powertrains.

"There is a lot of overcapacity in powertrains in the Big Three," he said. "The hardware is becoming a commodity. They could put all of those components together and look at what the best transmission would be for different ranges and engines and go with those.

"There is very little outside supplier base for components. It's not like power steering or HVAC systems that a number of companies supply. There are some transmission makers, but most of the capacity is within the car makers.

"The incentives are really very large for working jointly between the companies," he continued.

His personal estimate is that such a consortium would save the manufacturers $1,000 per vehicle.

As far as what Getrag will do, Cole isn't sure.

"What happened in the world turned very different from what everyone expected," he said. "It's a matter of survival now and they're going to have to adjust to some extent on the fly."

Asked whether abandoning the Tipton project is a possibility, Cole noted the overcapacity in the powertrain portion of the industry.

"Do you put good money after bad? This is just wild," he said of the breakup.

But, that also describes the industry as a whole, Cole noted.

"There is so much noise, smoke and turbulence," he said, "until it steadies a bit, it's hard to make sense of what's going on."