[mgescuro]

The GNR Alliance
...yet another commentary by mgescuro...

On June 30th, Kirk Kerkorian put forth a proposal that would press General Motors into accelerating its turnaround by forming an alliance with Renault and Nissan. In doing so, Renault and Nissan would pay $3 billion for a 20% stake in GM. Kerkorian has a 10% stake in GM currently.

For myself, I am completely stumped by the logic of this alliance. People seem to be concerned that GM will be “bought out by the French.” First of all, this isn’t a merger. Plus it is not clear how the investment would take place. Would Nissan and Renault put up $1.5 billion each? Etc.

Terry Christiansen, Mr. Kerkorian’s lawyer stated that if Nissan and Renault were to form this alliance with GM, the companies could draw from one another's expertise in manufacturing, engineering and product development. In short, the 3 companies could for synergies that will help them compete in the increasingly difficult global auto market. On the surface, it makes obvious sense. But as you dig into it more and more, you find that there really are not any real synergies to be had. So what’s the point?

At a high level, I really don't understand the “synergies” the three companies will realize:

• French auto factories are over gluttoned with workers. GM's Euro factories are also over gluttoned. No perceived synergy.
• GM has Ethanol and Hybrid technology, not to mention Electric and Hydrogen technology. R-N doesn't have any of that. But that's not synergy.
• Renault-Nissan has the VQ and diesel technology. (Though GM has the HF and Isuzu...) No perceived synergy.
• GM has low/mid and mid/high premium brand. R-N has low/mid and mid/high premium brand. No perceived synergy.
• R-N has access to Japanese manufacturing methods. Dependent on internal R-N strategy on deployment of those methods. GM has its own flexible factories initiative already in play. No perceived synergies.

Then what gives??
The ONLY true “synergy” I can find is related to market access. GM has complete access to the North American, Chinese, and Australian auto markets. That's something I don’t believe R-N has. R-N would give GM access to Japanese markets, but their failed ventures with Toyota, Suzuki, and Subaru went nowhere. So why would Nissan work?

The problem with this alliance is that it does not provide any significant competitive advantage. To achieve true competitive advantage, the companies must offer value to the customers at a cost that produces better performance than rivals. This alliance does not position any of GM’s brands and Renault and Nissan’s brands better in the markets with respect to the competition. And it really doesn’t protect each other’s positions from the rivals. This alliance could allow the three companies to use each others’ suppliers. But the cost differential in the highly cost sensitive auto parts market has all negated any advantages there. Furthermore, this alliance will create a complete organizational nightmare and culture shock, I don't even want to think about it.

What the alliance does do, is create a global juggernaut with about 25% of the world market, compared to Toyota’s 14%. But as Toyota has proved time and time again, market heft doesn’t really count in this market. What I believe is needed in the global market is agility and a solid strategy. I believe GM has a strategy. It doesn’t need a complicated alliance to achieve their goals. All they need is time. And they need someone who is willing to step outside the GM corporate mentality and consider no division at GM or division-head at GM “safe” from the proverbial axe. Wagoner has done that. He’s been a different leader than any other GM CEO in recent past. I’m not defending Wagoner, as I still think he’s got a lot to do and needs to do, but he’s certainly treated GM differently than any other GM head.

Which brings me to the ultimate reason as to why Kerkorian dropped this bombshell – Carlos Ghosn. Mr. Cost-Cutter. Running a quick-and-dirty analysis of this proposed in my head really proves that this makes absolutely no sense, aside from the fact that the Renault-Nissan alliance has Carlos Ghosn. With Kerkorian able to influence 30% of GM’shares, he would be in a strong position to oust Wagoner in about a year’s time. I think Kerkorian is hoping to do just that.

How will this occur? You get GM to accept the alliance. In about 6-9 months time, the alliance should pass regulatory scrutiny. There is no doubt in my mind, Renault-Nissan will ask for no less than 2 board seats. After which time, Kerkorian will presumably have enough influence on the Board to motion for Wagoner to step down and suggest Gohsn to take over. This would put GM into late-2007/early-2008. And Gohsn will take over come mid-late 2008. And that’s not such a bad idea to have Gohsn take over GM. However, getting to that point, you have GM completely distracted from its core mission – producing cars. The board is in meetings. Wagoner’s running strategy meetings regarding the alliance and not the car market. You have political in-fighting among the divisions and engineering and their territory. It’s a mess.

GM right now is focused on building good cars. This alliance, upon a cursory inspection, doesn’t offer anything significant to the table. All this proves is Kerkorian is trying to work behind the scenes and not necessarily thinking about how to succeed in the automobile industry. He’s also proved to me that he has no sense of corporate strategy. And any analyst worth his/her salt will see this as a blatantly transparent political move at the expense of GM position in the automotive market.

The only two benefits I can see is opening up new markets, but that hasn’t been fruitful in the past, and bringing in Goshn, which is sure to bring a turmoil at GM at a time it doesn’t need the turmoil. I believe the alliance is a complete waste of time, and Kerkorian had best rethink his strategy. We all know he's in it for the cash, but implementing incompetent strategy to get there is bad business.