Proposal for GM Baffles Analysts
As the board of General Motors Corp. meets today to consider billionaire investor Kirk Kerkorian’s proposal to ally the ailing automaker with Renault and Nissan Motor Co., industry analysts and academics remain more puzzled than sold.
They believe the plan is little more than an attempt by Kerkorian to boost the value of his 9.9% stake in GM while pressuring Chief Executive Rick Wagoner to speed his timetable for restoring the company’s health after a $10.6-billion loss last year.
Since Friday, when GM’s board received the proposal in a letter from Tracinda Corp., Kerkorian’s Beverly Hills-based investment firm, there has been a frenzy of speculation that Carlos Ghosn, the highly regarded CEO of Renault and Nissan, would take the reins at GM as well.
Ghosn, the thinking goes, would apply the same magic he used to rescue Nissan from near-insolvency in 1999 to solving the woes besetting GM in 2006.
But in assessing the proposal that Renault of France and Nissan of Japan take a combined 20% stake in GM, Wall Street analysts and academics who study the auto industry generally have raised red flags.
They point out that Renault competes directly with GM in Europe and parts of Asia and that Nissan competes on a global basis. One of Nissan’s newest vehicles for the U.S. market, the redesigned full-size Titan pickup, pulls some of its buyers from dealerships selling GM’s Chevrolet Silverado and GMC Sierra models.
To avoid conflicts of interest, Ghosn probably would have to give up his day-to-day roles at Renault and Nissan -- both involved in their own restructuring plans -- if he were to take an operating post at GM, said Jeff Schuster, head of global forecasting at J.D. Power & Associates in Westlake Village.
There also has been talk that the three companies could benefit from economies of scale in parts and component purchasing, from sharing advanced technologies and from pooling design and engineering expertise.
Combining forces to win lower parts prices for bigger-volume purchases from suppliers “is the logical first step,” said Wes Brown, an industry analyst at Iceology, an automotive market research firm in Los Angeles.
But it could take years for all three to redesign their vehicles to share enough parts to make such a consortium work, he noted.
GM already has numerous technology development deals with automakers and parts suppliers around the world, “and I just don’t know what GM would get from adding two more big dogs to the table,” said James Sourges, vice president of management consulting firm Capgemini’s Detroit auto practice.
Although he is not convinced that GM would benefit from the proposed alliance, industry expert David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said he could see Wagoner and Ghosn working together.
“They both are coaches” who know how to delegate, Cole said. “They have their egos under control.
“The things that would make it work,” he said, “would be leadership compatibility, the savings they might get from consolidating components used in their vehicles, and whatever they would realize from sharing technologies.”
But GM maintains technology alliances with other automakers that have not required the other parties to take big stakes in GM.
There is even an existing GM-Renault-Nissan program in Europe in which the three jointly produce a minivan that is sold as the Renault Traffic, the Nissan Primastra and the Opel Vivaro.
“They can do this without selling part of GM,” said Schuster of J.D. Power. “There’s got to be some benefit I just don’t see.”
To Cole and others, Kerkorian is using the proposal to force Wagoner to speed his turnaround efforts by adopting some of Ghosn’s tactics.
When Renault acquired a controlling interest in Nissan in 1999 and sent Ghosn to Japan to run the company, he immediately announced a three-year plan with sales and profit goals -- and made sure each goal was met or exceeded, on time. He vowed to quit if any of the deadlines were missed.
“Mr. Ghosn is a talented executive, credited with turning around Nissan by severing many of its equity relationships with suppliers and dealers, and streamlining parts procurement,” University of Maryland economist Peter Morici wrote in an analysis of the proposal. “At GM, what can be done along those lines is either already accomplished or underway. Mr. Ghosn has no new magic to provide.”
Wagoner has already trimmed 35,000 jobs from GM’s U.S. manufacturing payroll, negotiated a deal with the United Auto Workers union to have retirees pay a bigger share of their healthcare costs, announced plans to close a dozen factories by 2008 and structured a job-cutting deal that eased tensions that could have led to a crippling strike at Delphi Corp., GM’s largest parts supplier.
That Ghosn has gone on record supporting the proposal -- and that the Renault and Nissan boards have given him permission to pursue the idea -- “is counter to what we expected,” analyst Ronald Tadross of Banc of America Securities wrote in a research report.
“We are generally skeptical of automotive alliances.... Not only have we not seen one work,” he wrote, “but Toyota’s and Honda’s success illustrate to us the opposite is the right way to go.”
