GM-Chrysler Merger Would Hurt State Budget
|Topics: General Motors, Chrysler LLC
February 21, 2007
The automotive industry has been smoldered by different types of scorching pandemonium in the past six years – plant closures, job cuts, ailing automaker’s reputation and vanishing confidences. Moreover, the state’s famished financial system is expected to be significantly hurt by the predicted GM-Chrysler merger.
State officials also expect that job losses and plant closures would continue to increase. This could trigger the decline in income and property tax collectibles and business tax revenues. "Clearly, it's going to have a negative impact losing all those high-paying jobs," said state Treasurer Robert Kleine. "Without doing a study, it's difficult to say how much."
Michigan is battling with an $800-million-plus deficit this year. The said figure could eventually drill a bigger hole in the state’s budget for 2008. Kleine said that there is little the state can do to head off a merger. "There's not too much we can do about the business decisions of private companies," he said. Kleine added that there has been some talk about setting up special funds for displaced workers who need retraining or who want to start new businesses should there be layoffs or buyouts.
James Epolito, the chief executive officer of the Michigan Economic Development Corp. (MEDC), said the state has not been privy to any GM-Chrysler merger talks. "We have not been in any direct discussions of one joining the other," he said. "From my standpoint, it's speculation at this point. Everything is on the table and everything is a possibility."
Epolito said the MEDC is in contact with the auto companies weekly about their business decisions. So if merger talks "were to become more than speculation," Epolito said, "it would make the MEDC uniquely suited to deal with any consolidation of assets" in Michigan.
Michigan's unemployment rate 7.1 percent and it is well above the U.S. average of 4.6 percent. And additional job cuts would greatly injure the economy of the land. The situation is not as simple as losing in a few deals of EBC brake pads - it is totally graver.
Still, there are analysts who consider the coupling of the largest automaker and Chrysler Group as next to impossible. "Anything's possible, but this one seems unlikely," said John Casesa, a longtime auto analyst and managing partner of New York-based Casesa Strategic Advisors LLC pertaining to the GM-Chrysler possible merger. "It would increase exponentially the challenges GM faces in turning around the company. These two companies have an immense amount of overlap in people, plants, dealers and products, and there'll be very considerable cost in working through all that."
"They're not far along enough, in my assessment, to take on something as gigantic as absorbing Chrysler," said Gerald Meyers, a business professor at the University of Michigan and former chairman of the AMC automaker previously acquired by Chrysler.
Wall Street analysts are also skeptical whether the deal is smart for GM to take. "GM already has too many brands that cannibalize each other," added analyst Brad Rubin at investment firm BNP-Paribas. "If you add three more, there's going to be more cannibalization."
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