Automaker Alliance Discussions Terminated
Talks aimed at building a three-way partnership of General Motors Corp. and the Renault-Nissan alliance have ended in disagreement over GM’s insistence that the French and Japanese companies should pay it a multibillion-dollar premium to go ahead with the proposal.
GM Chief Executive Rick Wagoner said Wednesday that a partnership under the terms Renault and Nissan Motor Co. demanded would have benefited them the most while preventing his company from pursuing ties with other automakers.
The breakdown opens the way for Ford Motor Co., which lost $1.44 billion in the first half of this year, to pursue the idea it raised last month of allying with Renault and Nissan.
Carlos Ghosn, chief executive of both companies, said last week that if the talks with GM ended, he would seek another North American partner to join the alliance, formed in 1999 when Renault took a controlling stake in then-failing Nissan.
“Assuming he was sincere, Ford looks like the next candidate for the job,” Banc of America Securities analyst Ron Tadross wrote in a note to investors Wednesday.
Both GM and Ford are trying to recover from decades of eroding U.S. sales in the face of increasing competition from Asian automakers, particularly Toyota Motor Corp. Nissan’s larger Japanese rival surpassed Ford to become the world’s No. 2 automaker in annual global sales and is on track to knock GM from the top spot within a few years.
Wagoner said Wednesday that GM’s board had voted unanimously the day before to table the talks, a position GM management recommended although the initial schedule called for negotiations to continue at least through Oct. 15.
The alliance was proposed in July by GM shareholder Kirk Kerkorian, whose Beverly Hills-based Tracinda Corp. owns 9.9% of the automaker. Even Jerome York, who represents the billionaire as a member of the board, ultimately voted with management, Wagoner said.
Neither York nor Kerkorian could be reached for comment Wednesday.
Tracinda issued a statement saying it still believed that “a global alliance with Renault and Nissan would have enabled GM to realize substantial synergies and cost savings.” The statement did not address York’s vote.
In a filing Thursday, Kerkorian said Tracinda was considering increasing its GM stake by as many as 12 million shares, to 12%, and urged GM to aggressively pursue allying with Renault and Nissan. It was not known whether he would abandon further investment now that the plan is dead.
Renault and Nissan, in a statement, said they considered GM’s demand for payment to be “contrary to the spirit of any successful alliance.”
The breakdown of the negotiations had little apparent effect on GM’s stock price, which dropped 9 cents to $33.36.
“I’m not sure the market was expecting anything to come of it,” said Shelly Lombard, an analyst with GimmeCredit bond research in New York.
Wagoner showed little enthusiasm for the plan and has enough on his plate without having to try to blend GM into the existing Renault-Nissan alliance, said corporate credit analyst Sean Egan of Egan-Jones Ratings Co. in Haverford, Pa.
“GM will probably have to combine in some form with another firm eventually, just to maintain critical mass and counter Toyota,” Egan said. “But I think that now they are just going to focus on trying to turn around the U.S. manufacturing operation.”
Wagoner, who last week stated bluntly that GM did not need a partner to survive, said much the same in a news conference Wednesday.
GM, which lost $10.6 billion last year, will concentrate on its own turnaround, he said.
Wagoner said the company had made “a shocking amount of progress” in the last year in cutting healthcare costs, dramatically paring U.S. and Canadian payrolls, shedding underperforming assets, revising its marketing and warranty programs and speeding the launch of crucial new products such as the redesigned full-size pickup trucks and sport utility vehicles that bring in much of GM’s revenue.
Auto industry analyst David Healey of Burnham Securities applauded the end of the alliance talks.
“Wagoner and crew are pursuing the right course,” said Healey, who owns shares of the automaker. GM is “stabilized in the U.S. and exploding overseas. It’s doing fine, now, on its own.”
Wagoner acknowledged that today’s competitive market will require automakers to combine forces from time to time and said GM would be interested in pursuing joint projects with other automakers in the future.
He said GM had proposed to Renault and Nissan that the three companies continue talking about mutually beneficial projects. But the Franco-Japanese allies rejected that bid, Wagoner said.
“It is my understanding that they were interested in the broader-based, permanent structure” of an alliance in which Renault and Nissan would each hold a minority stake in GM, “but not in a project-by-project” relationship, Wagoner said.
He identified areas such as common development of engines, transmissions and other powertrain components, shared purchasing and distribution, even shared manufacturing, as topics that were discussed.
Wagoner said the companies were in agreement on many of the savings that could be realized by a formal alliance but remained far apart on one issue he declined to specify. Others familiar with the talks have identified the issue as a pooling of purchasing, which would have required the companies to use many common parts.
GM reportedly had calculated that an alliance would cut its purchasing costs by $1 billion to $2 billion, while Renault estimated that GM’s savings would be much higher.
Wagoner would only say Wednesday that his team believed that the other companies, particularly Nissan, which competes with GM in the United States, would benefit far more from any tie-up.
Simon Sproule, a spokesman for the Renault-Nissan alliance, had a different take, saying his companies believed that the benefits would be spread “more equally.”
He said Renault and Nissan believed that with juggernaut Toyota steadily increasing its sales around the globe, “our two companies are stronger because of the alliance; ergo, adding a third partner could further strengthen the alliance.”
Regarding Ford, Sproule said that “we are open to talks with a North American partner that is willing to enter into an alliance.”
A Ford spokesman declined to comment.
