By Roland Jones Business news editor
updated 9/21/2006 11:47:45 AM ET 2006-09-21T15:47:45

Even though Ford Motor Co.'s latest commercials seek to assure customers that it is making “bold moves” to deal with its problems, a report that the carmaker has discussed forming an alliance or even merging with rival General Motors has raised eyebrows.

But given that the two giant manufacturers compete in virtually the same markets, analysts say a broad alliance appears extremely unlikely, although both companies could gain advantages if they were to form some kind of partnership.

On Monday, the trade journal Automotive News reported that executives at Ford and GM discussed the possibility of joining forces after Nissan’s CEO Carlos Ghosn broached the possibility of an alliance of Renault, Nissan and GM in July. GM is formally considering an alliance with the Nissan-Renault consortium, while Ford is said to be considering the idea as well.

In the past, discussions between the major automakers have yielded a growing number of joint efforts on everything from hybrid vehicles to better automatic transmissions, said David Cole, chairman of the non-profit Center for Automotive Research, a non-profit organization. Auto executives frequently discuss "what-if" scenarios and possible deals large and small, he said.

Ford and GM have officially declined to confirm or deny whether any merger or partnership discussions have taken place.

Ford and GM certainly have a lot in common. The nation’s two biggest automakers are in the midst of a massive restructuring, hobbled by a shrinking domestic market share, slumping stock valuations, multibillion-dollar losses and the high wages and generous health benefits promised to their existing and former workers.

GM and Ford also have been busy slashing their work forces and closing plants in efforts to stem their losses in the face of tough competition, mainly from Asian automobile manufacturers. Last week Ford announced plans to accelerate plant closings and layoffs in an effort to cut $5 billion in operating costs.

Kevin Reale, research director for AMR Research, an industry consulting company, says there are ways the two companies could collaborate to gain efficiencies.

“There are pros and cons here, but these two companies could conceivably work together to develop a chassis they could both use,” said Reale. “They could also save by identifying strategic components they can share to save costs — components that are not customer-centric, like car batteries. And they can group R&D spending and focus on alternative fuels so they can both move more quickly to develop alternative drive technologies.”

Putting their combined efforts into developing hybrid drive transmissions, or fuel cell technology would benefit not only the environment, but also the two companies’ bottom lines, Reale added.

Reale points to a bill soon to be introduced in Congress that would mean up to $20 billion in federally backed loan guarantees for the Big Three automakers to speed the development of green technologies, including hybrid gas-electric engines, flexible fuel vehicles and clean diesel.

“What better thing to build a partnership around than the environment,” said Reale. “If these two companies can figure out how to be leaders is ‘eco-vation’ — that is, the whole concept of innovating around the environment — they can reduce their cost structures and still maintain their ability to compete.”

Reale says that such a partnership is more plausible than a merger, which would take many years to complete. The two rival companies have worked together in the past to develop a six-speed transmission, and similar partnerships would allow them to test the waters on how a broader relationship would work.

“An all-out merger would probably be lengthy, and I don’t know if either company could afford it right now, and GM has more forward motion than Ford, and this could disrupt that,” Reale said.

One sticking point would be the large number of automobile brands that both companies manage. Ford operates seven brands in the United States, while GM has nine. Combining operations and brands “wouldn’t just be a multiyear merger, it would be more like a decade-long strategy,” he said.

In any merger, brands would likely have to go, Reale said. Although analysts have said both Ford and GM have too many brands, both appear reluctant to kill any of their remaining nameplates. A merger would almost certainly mean the death of ailing brands like Ford's Mercury and Lincoln nameplates, while GM’s Pontiac and Buick brands would likely be on the chopping block.

Times are certainly tough in Detroit, but one silver lining is both GM and Ford have a “burning platform,” said Mike Serena, a partner at TBM Consulting Group in Durham, N.C., referring to the business term that describes when a company is in a crisis that forces change.

“There is a sense of urgency,” Serena said.

“The old school way of doing things at Ford and GM isn’t working, and if they carry on with that in a partnership they will not be successful, at least not successful as those we see doing things the ‘new school’ way — that’s the Toyotas, Nissans and Hondas out there. But neither of these two companies has a good track record of good cultural transformation, so it remains to be seen if they can make an alliance really work.”

Nevertheless Serena is optimistic about Ford’s prospects for change. He points out that Ford managed to come up with the best-selling Ford Taurus, which was named in Car and Driver’s annual Ten Best list for each of the years it was produced in the late 1990s.

“One of the criticisms of Ford is they need to come up with more innovative products, but the Taurus show they can design popular products,” he said. “The question now is, can they turn things around quickly enough?”

The Associated Press and Reuters contributed to this report.


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