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It Is Everywhere

There are few constants in this world. Now, in this global financial crisis (meltdown) there seem to be even fewer. But there is one that rings true regardless of time, place, or economic environment - two wrongs do not make a right.

It is amazing how, in the worst economic times, big organizations make the biggest mistakes. Nowhere is this clearer than in the proposed merger between GM and Chrysler. To be frank, the economics alone are poor. GM is burning cash at a rate of $1 billion per month and has lost more than $15 billion in the second quarter alone. Chrysler, on the other hand, is in shambles as Cerberus has failed to turn it around after acquiring it from Daimler, even with an infusion of cash. In addition, to top it off, Chrysler's most valuable brand, Jeep, competes in a SUV category that is withering on the vine. In short, a merger of this magnitude, from a pure economic perspective, makes no sense, and will not fix GM's cash problems.

However, there is more to this than pure economics. There is the issue of brand. Lets say, for argument's sake, that this merger does stave off bankruptcy for GM and rids Cerberus of a toxic asset. Then what? The larger issue is that they make competing vehicles in the same category and neither has a brand strong enough to carry the other with the most profitable vehicles (i.e. trucks, SUVs, and Mini Vans, for Chrysler) from both companies seeing catastrophic declines in sales.

What Is Wrong With The Merger

The fundamental issue that companies face all the time is understanding the differences between the business of their businesses and the business of their brands. In this case, the confusion may end up costing GM and Chrysler their very existence. GM and Chrysler are in the same business - automobile manufacturing. They do basically the same things: design, test, build, sell and market vehicles, with varying degrees of success. However, the business of their brands is something quite different.

GM has been attempting to rebrand itself as something "green," as if its history of being a manufacturer of fossil fuel-devouring vehicles can be ignored. Chrysler has no idea what its brand is. One of the most interesting things with these two manufacturers is that, on their websites, they each have a navigation tab that takes visitors to "The GM Experience" and "The Chrysler Experience," yet neither defines what the experience is or, more importantly, the customers role in that experience. Brands at their core must be a reflection of those customers who use it. As neither GM nor Chrysler has a brand in the first place, this merger not only makes no economic sense but any brand sense either.

To be fair, this is not a problem that GM and Chrysler have alone. Auto manufactures and the models they build have had this problem spanning decades. Automobile manufacturing has failed to connect with consumers on a preceptive level. As automobile manufacturing became more and more of a commodity business and differences between models became less and less, the US manufacturers failed to build their brands. Rather, their financing arms concocted 0% APR for 72-month financing plans in an effort to drive sales. In retrospect, those financing deals did drive sales, but failed to drive preference, an essential element of good branding.

Look Before You Leap

Understanding the differences between the business of the business and the business of the brand is essential for long-term success, especially in mergers and acquisitions. One company who understands this is FedEx. In 2004, FedEx bought Kinko’s for $2.4 billion. From a business of the business perspective, Kinko’s and FedEx are in entirely different businesses. Kinko's business is copying; FedEx is shipping. However, both of their brands are about peace of mind, which is why the merger worked from a brand perspective. Peace of mind in ensuring next day delivery and peace of mind in ensuring the business presentation gets copied. What FedEx and Kinko's have and what has helped make each successful together is synergies of brand.

Moreover, unlike Chrysler and GM, FedEx and Kinko’s were not competitors thus enabling an even more robust confluence of brands. Since they are direct competitors producing near similar models, a merger between GM and Chrysler can only serve to further disrupt the already incoherent branding that is being done by both companies. There is no synergy of brand in this merger whatsoever. The US automotive manufacturers have not produced BRANDS in nearly 50 years, they have produced MODELS. Brands are something that has meaning to the customer that enables the customers to see themselves in the product. Think Harley Davidson; their brand is all about the customer, not about the company or even the individual models. Harley Davidson is the brand, and no matter if you ride a Fat Boy or an Electra Glide, you are still riding a Harley.

Success Leaves Clues

Do not kid yourself into believing there is no room for this definition of brand in automobile manufacturing. Look at the Toyota Prius, for example. In 2000 when the Prius was first sold in the US, and many people did not perceive there was a global “energy crisis” the Prius was immediately a hit, with massive backorders. Prius owners saw themselves as different and somehow special. Larry David in Curb Your Enthusiasm on HBO even drove one often remarking how Prius owners gave each other a wave as they passed driving down the road. The brand did not come from Toyota; the brand came from those who purchased the car.
The Chrysler and GM merger will never go through. But, the merger is not the real issue.

The real issue is that US automobile manufacturers do not understand the difference between products and brands and no matter what happens to GM or Chrysler, that problem will still exist. Brand is not the US automakers holy grail. But it is its foundation. Brand is not just some pithy phrase or sales promotion. Brand is a reflection of the customer when they use a product or service. It is through this connection where preference and ultimately margins reside. To date, GM and Chrysler have failed miserably in this regard. Their merger would only serve to consolidate two cash-burning companies into one and thus only make the fire larger (get ready tax payers for another bailout) proving yet again, that two wrongs do not make a right.