Global Insight Perspective | |
Significance | Wagoner and Ghosn finally met to discuss a possible tie-up between the carmakers, an initiative brokered by GM's largest individual shareholder. |
Implications | Although very few details on the form of the alliance transpired, a future collaboration between GM and Renault-Nissan may have profound implications on the industrial future and corporate governance of GM while offering a unique growth opportunity to Nissan and Renault, albeit to a lesser extent. |
Outlook | The board of directors of GM is set to discuss the initial plan to study the feasibility of an alliance with Renault-Nissan, and some of the comments made by the carmakers suggest that the alliance review would focus on areas such as joint purchasing and manufacturing of components, sharing vehicle platforms, optimising research and development costs, maximising capacity usage and possibly define a strategic market repartition. |
Rick Wagoner, chief executive of General Motors (GM), and Carlos Ghosn, joint chief of the Renault Group and Nissan, finally met in Detroit last Friday (14 July) to discuss the possible benefits of an industrial alliance between the two automotive groups, which together represent about 23% of the world's light vehicle sales. The main outcome of the meeting was that both companies will work together to assess the possibility of setting up an alliance but the general tone remained cautious and little details transpired on a project that was not their own initiative (see World: 4 July 2006: GM, Renault-Nissan Boards to Meet on Alliance Proposal).
In a joint statement the heads of Renault-Nissan and GM announced that the companies agreed to cooperate in an expeditious, confidential review of the potential benefits of such an alliance to each company and the feasibility of achieving them. "We had a good discussion today, and are looking forward to having our teams work together to explore our ideas, it is important to let our teams work on this review without distraction and, therefore, we will not be providing further public comments about it at this time." the carmakers said in a statement. The review should take about 90 days and the companies will then decide whether to push further the possibility of an alliance.
Not a Disguised Takeover
GM and Renault-Nissan Global Light Vehicle Sales | |||||
2001 | 2002 | 2003 | 2004 | 2005 | |
GM | 8,620,128 | 8,479,762 | 8,386,377 | 8,709,647 | 8,780,395 |
Renault-Nissan | 4,877,603 | 5,021,465 | 5,261,149 | 5,614,530 | 5,891,950 |
Source: Global Insight | |||||
Although few corporate and technical details were issued on the possible alliance, both CEOs took the opportunities to clarify specific points. Similar to the approach taken by Renault and Nissan, Ghosn reiterated that a partnership with GM will only work if there is broad agreement that includes cross-shareholdings, but does not suggest any disguised takeover move. Also, he stressed that the same philosophy that forged the Renault-Nissan Alliance should be followed, a philosophy based on the principle that all sides involved should benefit from a collaboration. Finally, the chief executive of Renault-Nissan responded to mounting speculations that he was not interested in running GM. His counterpart at GM was initially rather lukewarm to the idea of engaging in cooperation talks with Renault-Nissan, not only because the initiative was brokered by GM's largest individual shareholder, Kirk Kerkorian, but also because this move somehow suggested that shareholders were losing faith in Wagoner's ability to run the company. However, Wagoner announced that he was open to considering all possible options and GM's board of directors was set to hold a conference to discuss a potential alliance with Renault-Nissan following the meeting.
Outlook and Implications
Although the carmakers "officially" agreed to explore the benefits of a potential alliance, the three companies involved are at different levels in their strategic development and facing dissimilar challenges. Renault Group is on the offensive to grow into an international car manufacturing entity, Nissan is capitalising on its impressive recovery and consolidating its gains in North America while GM is in the middle of a restructuring, focused on becoming a smaller, nimbler and leaner outfit in North America (GM has moved to sell assets and slash its hourly work force by 35,000 workers as part of a cost-cutting plan aimed at generating cost savings worth US$5 billion), able to react more quickly to market forces. At this level and in principle, it is already difficult to see what could be the benefits of changing trajectory to take on a new, culturally different partner on board.
Some of the comments made by the carmakers suggest that the alliance review will focus on areas such as joint purchasing and manufacturing of components, sharing vehicle platforms, optimising research and development (R&D) costs and possibly define a strategic market repartition. However, as implied by an Automotive News report, the most likely fit between the two companies is that one is looking to offload excess capacity at minimal costs whilst the other wants to grow further on the international scene and all the corners of the North American markets are yet to be exploited. In fact, on the one hand, GM plans to close 12 production plants and is preparing for a difficult round of negotiation over employee contracts and benefits with the United Auto Workers (UAW) union with a view to obtaining some concessions. On the other hand, Nissan, whose remarkable growth rate of sales is stalling, is looking again at the North American market for further momentum and hinted that it could be interested some of the excess production capacity GM is planning to shed in North America. If this is realised through an "alliance", this will surely minimise union criticism and workers' resistance while possibly benefiting Renault in the longer term, as the French brand still secretly dreams of a triumphal return to the United States.