Commentary: The GM-Nissan-Renault Alliance

[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.

[x2222]

Your'e completely right, there really is no real and specific benefit from this merger.

BUT, a merger of this type, no matter with who, has the potential of speeding up the restructuring of GM. Nissan's Ghosn has led his company into becoming one of the most leanest and meanest machines in the industry. GM really isn't moving fast enough on reforms and they have not taken those serious measures that must be taken to address their ovrearching problems. A merger might just be the catalyst that spurs this.

[steverino]

The Renault/Nissan/Kerkorian triumvirate would hold 30% of GM (10% each) which by many in the financial/investment community consider the tipping point in that an entity with that much ownership could force numerous changes and control the destiny of the company. Remember, the leader of this idea (Kerkorian) has no interest in the manufacture of automobiles or the longterm dynamics of this so called alliance. His interests lie in how many billions can I make on this deal and the sooner the better.

[redimpss5]

This is very funny, Plus, these are not really good car companies to be had anyway.

[hotrod747]

I agree 100%!

[Ty_99]

I completely agree with this anylist of the situation. Right from when we first heard about this, I though that Kerkorian was trying to find a way to get Ghosn in and his profits back up. I hope this doesn't go through. And further more that GM can get rid of Kerkorian and York's presence with in GM. As we have now seen GM is way better off without them.

[asim]

Yeah I agree, GM doesn't need all this mess and more internal politics to rule the company and hinder the main goal. The man goal right now, which is to build great cars and trucks, is not getting distracted by many things, and it has a great deal of attention focused into it. With the alliance there will be more mess. End of story.

[jbartley]

Originally Posted by x2222

Your'e completely right, there really is no real and specific benefit from this merger.

BUT, a merger of this type, no matter with who, has the potential of speeding up the restructuring of GM. Nissan's Ghosn has led his company into becoming one of the most leanest and meanest machines in the industry. GM really isn't moving fast enough on reforms and they have not taken those serious measures that must be taken to address their ovrearching problems. A merger might just be the catalyst that spurs this.

no it doesn't.

Suddenly there is two systems for every 1 system GM is trying to create. Nissan does not help GM in any way.

[jbernie]

I think GM is in a position where it doesn't need a merger or alliance of this nature. Defiunately GM could benifit from the ultra efficent euro diesels but that is about all.

The alliance would have way too many brands and i see it being unhealthy.

The only merger/alliance of benifit i can think of is GM getting together with a true luxury marque, a la Maseratti, Rolls Royce etc where they are in a market GM does not play. Cadillac is luxury, but it will be some time before it can be ultra luxury.

I feel this is simply Kerkorian's camp looking to make money on its investment in GM, it doesn't care about what the resulut is so long as they make a lot of $$ in the deal. GM should reject this proposal in full and regard as simply a profiteering exercise by an investor who does not really feel a love for GM.

[rsbaker]

This is a bad Idea any way you look at it GM gets nothing and the other companies potentially get access to GM Technology in hybrids and fuel cells. No way should GM be forced to do this under any circumstance I hope the rest of GM Stock holders tell Mr. Kerkorian what he can do with his bad Idea. Isn't he in his 80's now? I guess he wants to make one last big score before he's pushing up daisies.

[CobaltSScrazy]

Originally Posted by jbernie

I think GM is in a position where it does need a merger or alliance of this nature. Defiunately GM could benifit from the ultra efficent euro diesels but that is about all.

The alliance would have way too many brands and i see it being unhealthy.

The only merger/alliance of benifit i can think of is GM getting together with a true luxury marque, a la Maseratti, Rolls Royce etc where they are in a market GM does not play. Cadillac is luxury, but it will be some time before it can be ultra luxury.

I feel this is simply Kerkorian's camp looking to make money on its investment in GM, it doesn't care about what the resulut is so long as they make a lot of $$ in the deal. GM should reject this proposal in full and regard as simply a profiteering exercise by an investor who does not really feel a love for GM.

that was a great well said piece. GM should just stay the long term plan and put out world class leading products, the rest will take care of itself. it began with the gmt900's and continues with the 08 CTS...continue the momentum and we'll be fine. Merger=Dilution of american company, if GM is going to merge with anyone make it be ford, at least we won't be owned by another foreign company, and if the gov't would step in and perform their dutiful role leveling the playing field (no favortism just sticking to our core american value of equality aka level playing field), then we'd be all set (assuming great product).

[Kennyboy]

Good points.

[EViL Wagon]

I'm with you on this one, Mgescuro.

[Carman14]

So which company would be a good alliance partner with GM? I agree with everyone that R-N is not really helpful to GM at all.

However, I think Honda would be best of the Asian brands. In Europe, I think VW would be a good partner. Just getting access to their interior builders would be worth its weight in gold for GM alone.

And what about Ford? GM buys Ford...dumps Pontiac, Lincoln, and Mercury. Maybe, just maybe...

[mgescuro]

Originally Posted by Carman14

So which company would be a good alliance partner with GM? I agree with everyone that R-N is not really helpful to GM at all.

However, I think Honda would be best of the Asian brands. In Europe, I think VW would be a good partner. Just getting access to their interior builders would be worth its weight in gold for GM alone.

And what about Ford? GM buys Ford...dumps Pontiac, Lincoln, and Mercury. Maybe, just maybe...

There are no company's out there that would make for a good strategic fit at GM right now.

Honda wouldn't work with GM. THey don't need to. They are one of the last independent car companies out there, and they are very successful at it. Honda interiors are nothing to write home about. GM needs to work with Mercedes interior designers... and they already are.

A Ford and GM alliance would never pass regulatory scrutiny.

GM is best doing their transformation alone. An alliance would not help them at this juncture. Instituting a change like that would add an element of cultural change. GM's own corporate culture is already changing. So changing againg would provide such an unstable element, it would drive HR crazy.

GM is big enough to weather the changes on their own. After the changes are complete, THEN they can start looking at alliances.