fastball

Over the last few months, I think we all speculated, and it seems it may come true:

http://www.marketwatch.com/News/Stor...&dist=morenews


GM surges after Kerkorian letter

By Shawn Langlois, MarketWatch
Last Update: 5:02 PM ET Jun 30, 2006


SAN FRANCISCO (MarketWatch) -- Billionaire investor Kirk Kerkorian, pushing to put another proven turnaround specialist closer to General Motors' top brass, fired off a letter to GM Chief Executive Rick Wagoner Friday, urging the struggling Detroit automaker to join an alliance forged between France's Renault and Japan's Nissan.
The surprise move elicited a terse statement from General Motors Corp., which said this latest request from Kerkorian would be "taken under advisement by the board," but that it "has received no offer or proposal from Renault/Nissan" about a potential linkage."
GM's board called an emergency meeting Friday to discuss the proposal, according to trade journal Automotive News.
Nissan welcomed the move, confirming that Kerkorian and his advisers already had broached the idea with Renault-Nissan Chief Executive Carlos Ghosn, who made a name for himself by reversing the flagging fortunes of Nissan and, before that, tiremaker Michelin.
"The Renault-Nissan Alliance is an open partnership, which has never been restricted to two partners," the company said in a statement. "At this point, it is necessary that GM's board and top management fully support this project to start the study of this opportunity after agreement of the Renault and Nissan boards."
The wheels already were spinning on Wall Street, where the news triggered a double-digit rally in GM stock. The shares backed off intraday highs, but clung to a $2.63, or 9.5%, gain at $30.07 in late-afternoon trades -- territory untouched since October. Discuss General Motors.
Going global
Such an alliance would thrust GM back into the international arena, where past forays have not produced stellar results. It took over European marques Opel, Saab and Vauxhall and has seen sales slip, prompting production rollbacks, plant closures and labor strife. Last year, GM sold its entire 20% stake in Fuji Heavy Industries, the parent of Subaru. It also has sold off its 7.9% stake in Isuzu Motors Ltd.
GM's pullback from overseas partnerships reflects more its need to raise cash to support its flagging operations at home than the realities of the global car industry. While GM and Ford Motor Co., along with their suppliers, increasingly rely on foreign-made components, Japanese carmakers have been building up North American assembly lines.
Kerkorian appears undeterred by past performance, though. Through his Beverly Hills, Calif.-based Tracinda investment company, he said that hitching GM to Renault-Nissan could "realize substantial synergies and cost savings and thereby greatly benefit the company and enhance shareholder value. Accordingly, we urge the board of directors to form a committee to immediately and fully explore this opportunity together with management."
Tracinda, represented on the board by Kerkorian's top adviser Jerry York, owns 9.9% of GM's shares.
"A deal like this could make a lot sense, and it could turn out to be a good thing for General Motors," said Patrick Welch, analyst at Wall Street Strategies. "I think the companies are in a position to make it happen."
Kerkorian has been relatively quiet since maneuvering York into the GM boardroom. After the Detroit auto show in January, York -- who played a big role in turning around Chrysler in the '80s -- cited Carlos Ghosn and Nissan as an example when he publicly urged General Motors to be more forthcoming with its financial targets.
GM stopped providing earnings estimates last year while on its way to a $10.6 billion loss.
Merrill Lynch analyst John Murphy reiterated his buy rating on GM after the news, but downplayed the chances of a deal being struck.
"If this was really happening, we would have expected to hear about this first from Mr. Ghosn," he wrote in a note, saying that the mere mention of a possible alliance is a confirmation of "significant" value in GM.
Still, given his growing clout in Detroit, there's a good chance Kerkorian gets his way.
Beneficial for all?

One sell-side analyst who covers Renault said that Ghosn always has been open to an alliance in North America, since Renault and 44%-controlled Nissan Motor are strong in Europe and Asia, but not in North America.
The analyst, who spoke on condition of anonymity, said that the alliance with GM would likely focus on joint development, and not cross-selling. With environmental issues looming, automakers will face growing research and development costs to make less-polluting automobiles, and an alliance could help spread the costs and the risks between the firms.
In February, Ghosn -- who is credited with turning around Nissan and Michelin -- set a goal of turning the French automaker into Europe's most profitable mass producer by 2009.
David Kudla, Mainstay Capital's chief investment strategist who manages savings for about 1,000 GM retirees and employees in Grand Blanc, Mich., said that a partnership would strengthen the competitive position for all three companies.
"GM could potentially benefit from [Ghosn] depending on the level of his future involvement in GM," he added. "Renault and Nissan would significantly benefit from GM's global infrastructure, especially its dealer network in the United States and other foreign markets."
But, as seen before, forging new international ties are not without pitfalls.
"GM has been in bed with Fiat, DaimlerChrysler has with Mitsubishi; these alliances are not necessarily smooth sailing. As you add more parties it can get more complicated," according to Michael Tyndall, an analyst at Nomura Securities in London.
He nevertheless cites Nissan and Renault's alliance as an example that appears to be paying off.
"There are great economies of scale from doing all the stuff behind the scenes as one," he said, from gaining leverage with suppliers to selling engines or gearboxes to each other.
If an alliance does come about, he doesn't imagine Renault flooding the North American market via GM dealerships, Tyndall added. "They're not American cars."



I beg to differ a bit on the last line - I checked out Renault's web site (Renault.com), and they actually make some very attractive, appealing cars which I think would do well in the States today. They are nowhere near the ugly monstrocities we all remember in the States back in the 80's which were actually built in America by AMC (Alliance, LeCar). They are refined and very clean looking cars. Not only that, but they offer high end features like keyless ignition, dual zone climate control, and an air conditioned glove box. I saw a very nice looking 5 door sport hatch ( the Laguna) with an available 6 speed manual.

jaje

kevorkian (pun intended) his company only want to cover up his billion dollar loss as they expected more effort on GM's part in the turnaround

fastball

Yes. He's looking out only for his own profits. Since he owns such a large chunk of GM stock, the slow turn to profitability on GM is making him eager to dump what he has to someone willing to pay for it.

M Type X

Renault is looking for a way to sell its own products in the US without actually building up its own dealer network again. ugh! Be direct, Schweitzer.

MtViewGuy88

I have a piece of news: they're already partially doing that through Nissan. The Nissan Versa is based on a stretched Clio platform, and the 2007 Sentra is based on the Mégane platform. There is some talk that the same Mégane platform used on the 2007 Sentra could be used for a new "tall wagon" almost identical to the Renault Scenic but using a modified Sentra body design.

zishan

yea...but even though nissan and renault co developed the platforms..nissan really did most of the developing of the platforms.

billygoat27

This is the Kevorkian's (great pun, btw) way of ousting Rick Wagoneer and getting Carlos Ghosn in power.

If that's the case, I hope he puts the LS2 in everything (just like that awesome V6 is in every Nissan).

fastball

I would just hope someone from Renault could show GM how to make a nice interior.