How muchMotor Co. Ltd. and SA are willing to pay – if at all – for access to Corp.’s global materials and parts purchasing machine remains the biggest stumbling block to any 3-way alliance between the auto makers, insiders say.
But the issue of sharing vehicle assembly plants in North America, whichand CEO Carlos Ghosn first suggested as an upside to an alliance, has never even entered into the negotiations and is unlikely to be a part of any potential tie-up, sources close to the discussions tell Ward’s.
Details about the tie-up talks began leaking out this week prior to a much-ballyhooed 3-hour meeting in Paris between GM CEO Rick Wagoner and Ghosn. Both emerged from those discussions saying study teams will continue meeting until mid-October as planned.
But on the sidelines of the Paris show, executives and other insiders portray a dim picture of the alliance’s chances, including GM Vice Chairman-Global Product Development Bob Lutz, who says GM may have more to gain through internal synergies worldwide than by way of a partnership with Nissan and Renault.
As if on cue, billionaire investor Kirk Kerkorian, who owns 9.9% of GM stock and first pressed the notion of a tie-up June 30, ups the ante, announcing he may buy up to 12 million more shares in the auto maker.
In a securities filing this week related to the potential purchase, Kerkorian again calls for GM’s board to take an active role in analyzing the potential of a 3-way alliance, including commissioning an independent review of the proposal.
While it’s still unclear what any 3-way tie-up would include, it’s certain it will not involve assembly plant sharing.
In interviews leading up to his first alliance meeting with Wagoner back in July, Ghosn indicated Nissan could be interested in picking up some idle GM plant capacity in North America.
“I think if we agree on an alliance, well you may stop some of the job losses and you may probably reduce some of the plant closings for a very simple reason,” Ghosn told CNBC July 13 when asked about how the alliance would deal with U.S. labor unions. “Nissan needs more capacity in North America. Period.” A Nissan spokesman wouldn’t comment on specifics of the discussions, but says Ghosn’s reference to potential plant sharing came up only in the context of “what if” scenarios in discussions with reporters.
Wagoner continues to indicate a deal with Renault-Nissan remains an option, not a necessity.
“We have a detailed turnaround plan and growth strategy for GM, which is working very well,” Wagoner says at the Paris auto show. “That’s going to be what saves the company and makes the company prosperous. If there are opportunities to work with Renault-Nissan, or other companies, as we do regularly, that can better pick up the pace of the turnaround or generate more shareholder value, we’re wide open to that.
“So we’re directly, thoughtfully, looking at ideas that have come up jointly with Renault-Nissan, but our turnaround is not based on that happening or not.”
As first reported in The Wall Street Journal, concerns Nissan and Renault would reap most of the benefits of shared purchasing are prompting GM executives to push hard for a cash payment from the other two auto makers as part of any alliance on parts procurement.
Being a part of GM’s high-volume, global purchasing operations “is one area (Renault and Nissan) had their hearts set on, but it doesn’t look like it’s going to happen,” says David Cole, chairman of the Center for Automotive Research in Ann Arbor, MI.
And in a conversation with financial analysts following the Wagoner meeting, Ghosn dismisses the idea of Renault-Nissan making a payment to GM. He also portrays the potential cost savings available to the trio as “very substantial – in the $5 billion to $10 billion range,” according to a report from JPMorgan.
A high-level GM insider tells Ward’s synergies could add up over 10 years, but he questions whether it would be enough to offset costs incurred as plants are closed following any sourcing shifts that result from the tie-up. The source also says Renault-Nissan is about 10 years behind GM in global synergies.
On the eve of the Paris auto show, and fully aware comments have been dribbling out from the Renault-Nissan camp, Lutz tells a small group of reporters of the dichotomy GM is facing as talks near a conclusion.
Lutz says GM must weigh the gains to be made via an alliance vs. those that can be had by pulling together GM’s own diverse activities and operating as a unified global company.
“We have to compare those savings with the savings we are in the process of getting by focusingas a global company in itself,” he says.
The reality, Lutz says, is the North American turnaround is exceeding expectations, as is the global strategy.
GM “finally is acting as one single auto maker,” Lutz says at the opening of a new Hummer dealership in Paris.
Historically, GM operated as four separate companies around the world (North America, Europe, Asia/Pacific and Australia), each with its own practices.
“GM was the holding company that collected financial results from these four companies,” Lutz says.
The conglomerate approach “clearly was not working for us anymore,” he says, especially with the largest entity, North America, struggling.
Last year was a transition year, and 2006 marks the first time GM is working with global budgets for all aspects of its business.
“There are billions (in savings) to be gotten just by making one GM out of four GMs,” Lutz says. “We’re not anti synergies, just after maximum synergies.”
Necessary bold moves are being made, he says, reciting a conversation earlier in the day with Wagoner about how no other auto maker ever has made the cost-reduction gains that GM has been able to make with the United Auto Workers union.
It has contributed to progress in the second year of the North American turnaround better than anyone expected, including a profitable second quarter for the first time since 2004. The auto maker also sold 9.2 million vehicles last year, more than 50% of them outside North America for the first time, Lutz says.
GM is less complicated in its structure today, he says, with a global approach to everything from product development to sourcing.
“GM uses its global scale better than anyone else,” Lutz says, which will ensure its ability to compete in the long term – with or without the Renault-Nissan Alliance.
Even if purchasing is taken off the discussion table, that doesn’t mean an alliance is a non-starter. Teams working on other aspects of a tie-up, such as powertrain technologies and product development, are said to have identified potential synergies.
Cole is optimistic an alliance still has a chance. But it may look much different than the broad-based venture Kerkorian envisioned when he first hatched the alliance scheme.
“I think they’ve made progress in enough areas,” Cole says.
– with Alisa Priddle in Paris