Kerkorian Seeks to Link GM, Rivals
Beverly Hills investor Kirk Kerkorian called Friday for General Motors Corp. to explore an alliance with France’s Renault and its Japanese affiliate Nissan Motor Corp., an arrangement that could dramatically alter the global automotive landscape.
Kerkorian, whose investment company holds a 9.9% stake in General Motors, floated the idea in a letter to GM Chief Executive Rick Wagoner that was filed Friday with the Securities and Exchange Commission. Kerkorian said in the letter that Carlos Ghosn, chief executive of Nissan and Renault, has expressed interest in his companies acquiring a “significant minority interest” in GM.
The letter did not say what form such an alliance would take, but it could enable the companies to combine some operations. Nissan, for example, could draw on GM’s underused assembly plants in the U.S. The companies also could profit by using common components and from sharing engineering and design expertise.
General Motors issued a statement Friday saying it “has received no offer or proposal from Renault/Nissan.” The statement said Kerkorian’s request “will be taken under advisement by the GM board of directors.”
The Detroit automaker’s board held an unscheduled session Friday to consider the proposal, according to the trade journal Automotive News.
GM’s stock jumped after Kerkorian’s letter was made public, rising $2.35 a share to $29.79.
In a statement issued jointly with Renault, Nissan said Friday that the companies’ alliance “could be expanded further” if the circumstances and partners were appropriate. But Renault and Nissan would not proceed unless GM’s board and top management “fully support this project” and it is approved by the French and Japanese companies’ boards, the statement said.
Such a linkup potentially would create the largest and most powerful automotive group on the planet. But GM would still have to work out its many deep problems.
The automaker, which lost $10.6 billion last year, has been saddled with soaring healthcare and retirement costs, shrinking U.S. market share, runaway raw materials costs, underused factories and labor agreements that required it to continue paying thousands of idled workers.
The company is in the midst of a turnaround plan that includes trimming an estimated $8 billion a year from its U.S. operating costs by closing factories, slashing its payroll and cutting benefit costs.
Some analysts liked the idea of getting the three companies together, but others expressed skepticism that such a deal would ever materialize. Analysts were divided over whether Ghosn, who already runs two large automotive companies, would want to get involved in GM’s headaches as well.
Ghosn has become the darling of the automotive world for his success in pulling Nissan from the brink of insolvency after being picked from Renault’s executive ranks to head the ailing Japanese company in 1998. Renault holds a controlling 44% interest in Nissan.
For the last two years, Nissan has posted record profit and the industry’s best operating margins.
Ghosn, once known as “le cost cutter” for his turnaround work at Renault, dismantled Nissan’s system of lifetime employment, closed several factories in Japan, consolidated its supply network and boosted quality ratings for its vehicles.
Insisting that the auto industry was first and foremost product-driven, Ghosn also bolstered Nissan’s design and engineering staffs. He insisted on bold, cutting-edge styling that resulted in vehicles such as the curvy Murano sport utility vehicle and the flashy Z sports car.
GM, suffering from what many critics say is weak design in its mainstream passenger cars, could use an injection of Ghosn’s enthusiasm for design, analysts said.
“We certainly think an alliance would be positive,” BNP Parabas analyst Brad Rubin wrote in a note to investors. “There would be a new leader at the head of GM and a few decent models and diesel engines from Renault. We don’t think Wagoner is a proponent of this, because he may lose his job.”
But Goldman Sachs automotive analyst Robert Barry told investors that he saw “little logic” in a GM-Nissan-Renault alliance. “Renault has just embarked on a sizable restructuring. GM would be a significant diversion. Nissan has been successful in North America
Burnham Securities analyst David Healy said in an interview that “ ‘a snowball’s chance in hell’ is too weak an expression” to describe the likelihood of a GM-Nissan-Renault deal actually happening. He said Ghosn already had “a very full plate” running Nissan and Renault.
Ghosn was approached by Kerkorian and Jerome York, the investor’s advisor and a member of GM’s board of directors, and the two asked him “to assess the merits of GM joining the Renault Nissan alliance,” according to the statement from Nissan.
A source familiar with the situation said that York first met Ghosn in London early this spring and that the subject of a Renault-Nissan investment in GM “was floated mutually.”
That meeting led York to arrange a secret dinner meeting for Ghosn and Kerkorian on June 15 at a hotel in Nashville, where Nissan is relocating its North American headquarters from Gardena.
Friday’s proposal was drafted during that dinner, said the source, who insisted on anonymity because of confidentiality agreements. The source said Ghosn proposed buying a 20% stake in GM, with each of his companies holding half.
Kerkorian, whose Tracinda Corp. is GM’s fourth-largest shareholder, has been pushing hard for the automaker to accelerate its turnaround efforts.
The nearly 9% gain in GM’s share price Friday pushed Kerkorian closer to breaking even on his hefty investment. He has spent $1.69 billion in the last year to build up his stake in GM and needs the stock price to top $30.24 a share to see a profit.
Some analysts suggested that Friday’s news was largely a ploy by the 89-year-old investor to pump up GM’s stock price.
The proposal “probably represents more of an effort by Kerkorian to maximize his investment than for GM to maximize its long-term outlook,” said Bob Schnorbus, chief economist for automotive market research firm J.D. Power & Associates in Westlake Village.
Tracinda attorney Terry Christensen said such suggestions ignored Kerkorian’s long-standing efforts to improve GM’s fortunes. The investor began building his 56-million-share holding when GM was in far worse shape than it is today, Christiansen said.
“For a year now, people have been looking at the black clouds hanging over GM, and this is an opportunity to create one of the world’s great automotive alliances,” Christensen said. “And if it helps GM shareholders, that’s great.”
