A successful merger (when strategy, motives, price and integration are achieved) will work out between the two automotive giants if one of the conditions that apply to the company were as follows for e.g. Company A is prospering, gaining profits and keeps a good future outlook; and sees that Company B is not doing as well and it would be in benefit for both companies if they merge. Similarly, neither GM nor Chrysler holds a stable economic status and a merger is more likely to increase the chance of making loss as a merger will only reduce the costs and expenses on a short term basis. The profits that both companies seek to make are years ahead of time as a result of a falling world economy. One might see this merger as a disaster however GM identifies it as opportunity cost. [] GM seeks for a chance in this deal where, by sharing the production costs and plants, both companies will be able to stabilize and control overproduction. This merger provides is more beneficial than constantly closing plants, production sites and cutting down jobs for 30000 employees along with the continuation of losing revenue. Moreover, Adam Smith’s theory of self-interest [] plays key role in GM’s part of this merger deal. It is for GMs own self-interest to merge with Chrysler as cost cuts in production will benefit GM more as a whole rather than Chrysler because GM is the one shutting down its plants and laying off employees and GM requires Chrysler to cover those costs to decrease loss and gain profit. In other words, it will be a quick fix for GM however it won’t do much for Chrysler.
Furthermore, the concept of “the law of diminishing returns” [] applies to this business deal and It determines the outlook of the merger. This law applies to this situation from different perspectives. A constant process of laying-off workers and decreasing demand will result in the company’s downfall. From another perspective, the merger deal between the two companies providing diminishing prospects for a profitable return.
On the whole, a lot can be expected from this merger however it is difficult to conclude how it will affect both companies as a hole in terms of positive or negative.
GM to Close Plants, Restrict Lending
Auto Maker Seeks to Cut Costs; Share Price Rises 33% After Plunging Last Week
By SHARON TERLEP
OCTOBER 14, 2008
General Motors Corp., now considering a tie-up with Detroit rival Chrysler LLC, will close a metal stamping plant in Michigan and a truck plant in Wisconsin sooner than previously expected.
The closings are part of its efforts to cut expenses ahead of what is expected to be a substantial third-quarter loss. They also come as GM's top executives are considering how to ensure the company's future, including a merger with Chrysler.
News of talks between GM and Chrysler emerged over the weekend. On Monday, Chrysler Chief Executive Officer Robert Nardelli told employees in a memo that the auto maker's top…
The labour intensive production defines the business of which the main cost is that of labour which is higher than the sales and/or the profit.
Opportunity cost is expressed in terms of the next best alternative and while of all the possible choices you value more.
Self-interest is the choice made by an individual for one’s own advantage and benefit.
The law of diminishing returns says that a constant input will result in a decrease in output and a constant output will result in an increase in input.
