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For GM, what might have been

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General Motors might be earning extra $10 billion annually if it teamed up with Renault-Nissan in 2006, according to report obtained by Fortune.

By Alex Taylor, senior editor
Last Updated: August 13, 2008: 1:49 PM

NEW YORK (Fortune) -- General Motors' directors let it be known last week that they are closely watching deteriorating conditions at the automaker. They gave CEO Rick Wagoner a vote of confidence and publicly disclosed that they are monitoring the company's performance on a week-to-week basis.

Before applauding their greater involvement, though, it is worthwhile to revisit a decision the directors made two years ago, under Wagoner's guidance, to scuttle a proposed alliance with Renault-Nissan.

According to recent interviews with parties involved in the discussions, as well as a confidential analysis prepared for the deal that was obtained by Fortune, the tie-up could have produced as much as $10 billion in operating earnings per year for GM (GM, Fortune 500) by 2011. That's a pretty attractive number for a company that has rung up $18.7 billion in losses in just the first six months of this year and needs to borrow $10 billion to $15 billion just to stay in business until 2010.

But the alliance's savings might have come at a steep price for GM's senior management. One proposed strategy called for a "repopulation" of GM's executive ranks with outside talent. That presumably would have forced some incumbent managers out of their jobs - a shocking development at a company where executives seem to enjoy lifetime employment regardless of their performance.

The strategy also called for the creation of a 30- to 50-person SWAT team separate from day-to-day management that would drive the implementation of the pact - another huge blow to GM's status quo.

A GM spokesman said the company couldn't comment on specifics of the proposed deal because all the relevant internal documents had been destroyed.

To be sure, there are a few things to keep in mind. This analysis comes from Renault-Nissan, and at a time when the auto landscape looked a lot different than it does today, with sky-high gas prices and plunging car sales in the United States. It's not clear if the partnership would have achieved the results the report claims.

What is clear is that the proposed pact represented bold action - something GM has long needed but so far been unwilling to take.

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Might have been a good deal . . . look how well that Renault lash up worked for American Motors.
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