Largest GM Shareholder Proposes Alliance with Renault-Nissan
Odd partners? If mega-investor Kirk Kerkorian has anything to do with it, France’s largest automaker and the only one that has a hope of entering the North American market anytime soon, Renault, already partnered with Japan’s number two automaker and the 7th largest globally, now that Hyundai-Kia past it last year, Nissan, would join forces with General Motors.
According to a securities filing, Kerkorian, who owns 9.9 percent of GM via his Tracinda Corp., of Beverly Hills, California, private investment firm, sent a letter to the world’s largest automaker’s chairman Rick Wagoner today, according to Automotive News, “in which Tracinda proposed that General Motors’ Board of Directors establish a committee to immediately and fully explore, together with management, a possible opportunity to join the partnership-alliance between Renault, S.A. and Nissan Motor Co., Ltd,”; the exact wording of the filing.
Noted, Kerkorian sent a letter to Carlos Ghosn, CEO of Renault and Nissan, as well, plus Louis Schweitzer, a former Renault CEO. In the filing, Tracinda points out that Renault-Nissan is interested in purchasing “a significant minority interest” in General Motors. The filing also states that Tracinda has contacted Ghosn about the issue.
What was GM’s reaction? According to Automotive News reporting on information given by two sources within GM, an emergency board meeting held earlier today to discuss the proposal, the urgency of which suggests that Wagoner and the rest of the GM board are at least willing to consider the proposal. Kerkorian’s representative, Jerry York, who sits on GM’s board, was said to be present.
Officially GM stated: “The Tracinda request will be taken under advisement by the GM Board of Directors. At this time, we have no further comment.” Both Renault and Nissan did not make comment.
Despite the Renault-Nissan silence, Reuters news agency reported that Ghosn “expressed interest in acquiring a minority stake of up to 20 percent (10 percent for Nissan and 10 percent for Renault) in GM” during a dinner at Nissan’s new Nashville, Tennessee facility with Kerkorian approximately 10 days ago.
While such a merger may never get past the initial discussion stage, GM has shown respect to its largest shareholder and customers alike by at least investigating the potential partnership.
But does it make sense for GM to grow larger when most critics have been calling for it to downsize, dropping its less profitable brands? This is a difficult question, and with an automaker so large and diverse impossible to answer in a few paragraphs. One thing is for sure, mind you, GM could certainly incorporate some Renault-Nissan technologies, and vice-versa.
Dieter Zetsche, DaimlerChrysler AG CEO, told reporters at Chrysler’s Auburn Hills home office Friday that the partnership was uncertain at best, questioning Kerkorian’s motive in going public with the proposal, which according to Automotive News resulted in a considerable rise in the value of GM shares earlier today.
“Sometimes the news in itself is already the purpose not necessarily leading to a result,” commented Zetsche. “Consolidation is one theme in mature industries. I would stay put and listen for further developments.”
But to a company that lost a staggering $10.6 billion USD in 2005, it seems that any news is good news. Close cooperation with Renault-Nissan not only would allow for greater component sharing and associated cost reductions, but the alignment would bring Carlos Ghosn into the GM mix, the man most credited for Nissan’s 1999 through 2001 turnaround. Ghosn has been nicknamed “Le Cost Killer,” although Nissan vehicles aren’t selling as strongly today as they were in recent years, with an 18 percent drop in domestic Japanese sales forcing it to slow production at two of its four final-assembly facilities in its home market; resultantly its share price has declined some 20 percent since May.
Automotive news reports that such a merger could increase GM’s bottom line by up to $3 billion USD, critically important since losing $2 billion cash to Fiat Group last year, a necessary payment for GM to wiggle out of a put option it had previously negotiated with the Italian auto giant.
In the end, GM may have to get real about the offer, if any, being made by Renault-Nissan, as the prospective cash and potential cost savings from shared product initiatives might be just what is necessary to keep it alive and well, with all of its current brands intact.