ALG Predicts Big 3 Merger Impact

In its November-December Residual Value Report, Automotive Lease Guide (ALG) offers these predictions regarding a prospective merger or chapter 11 restructuring scheme involving Chrysler, Ford or GM:

"A prospective merger or chapter 11 restructuring scheme could shave off 5 percent - 10 percent of current industry sales (~1 – 1.5 million units). Assuming new sales are reduced and Detroit’s domestic market share drops below 40 percent as a result of a possible merger (i.e. Chrysler with GM) or chapter 11 restructuring plan (i.e. GM , Chrysler or Ford), the following are the anticipated impacts:

ALG believes that lower sales could improve domestic 36m resale performance by ~3-4 ppts after the economy recovers and given that sound marketing strategies are pursued. This assumes that lost market share is not picked up by the remaining domestic OEM’s through higher incentives and fleet sales. More demand-driven production could spur a positive realignment of the Big 3’s declining brand value.

With the strong likelihood that brand(s) or vehicles will disappear from the domestic line-up, owners will face an accelerated loss in resale performance as experienced with Oldsmobile while contemplating to defect to import brands. In addition, an unwanted backlash from dealers and the UAW could happen, if the merger or restructuring plan does not properly address the needs of the dealers and union.

The regional and U.S. economy is likely to suffer further given that sales would drop even more. If the merger or restructuring plan generates the much needed cost cutting, demand-driven production and line-up, then additional jobs are at risk with more economic headaches for an already embattled Michigan State. On the other hand, more focus on developing fuel efficient vehicles could provide an upswing to the auto market as a possible outcome of the restructuring of the domestic OEMs."