News Analysis: Agreeing to Talk It Over, but Making No Promises July 17, 2006
The seconds are counting down in a high-pressure chess match between the chiefs of Renault and Nissan and G.M.
DETROIT, July 16 ? The seconds are now counting down in a high-pressure match of speed chess between Carlos Ghosn, the chief executive of Renault and Nissan, and Rick Wagoner, who runs General Motors.
Late Friday night, G.M. agreed to begin discussions on a potentially historic three-way alliance with Renault of France and Nissan of Japan. The companies announced the talks, which they intend to conclude within three months, after a dinner in Detroit attended by Mr. Wagoner and Mr. Ghosn.
By all rights, Mr. Wagoner, clearly not happy to be taking part in such talks when he is trying to concentrate on a North American turnaround, might be tempted to make a quick move, halt the clock and walk away from the table.
But it is unlikely that Mr. Ghosn ? or G.M.?s biggest shareholder, Kirk Kerkorian, who put the two men together ? will let that happen, despite Mr. Ghosn?s declaration in an interview last week that ?we stop? if G.M. is not interested in a deal.
?I don?t think they can call it quits? right away, John Casesa, managing partner of Casesa Strategic Associates, an industry consulting firm, said during the weekend. ?The board of G.M. has an obligation to take this very seriously.?
It was Mr. Kerkorian, who owns 9.9 percent of G.M. shares, who floated the idea in letters to the two companies on June 30. And Mr. Ghosn is in favor: he would love to add an American brand to his empire, and thinks that a global company would have advantages in manufacturing, engineering and product development.
Mr. Wagoner, on the other hand, says he believes that G.M. is strong enough on its own, giving the impression that the negotiations are a time-consuming distraction to his overhaul effort. Mr. Ghosn is working on a similar effort at Renault.
While the two men bring to mind the Burt Bacharach song ?Such Unlikely Lovers,? they and their companies have much more in common than Mr. Ghosn?s rapid-fire style and Mr. Wagoner?s steely steadiness would indicate.
Both of their companies are losing sales and market share in the United States. Nissan is the only major Japanese company whose sales are down from 2005, and G.M. has been unable to stop the decades-long slide it briefly arrested a few years ago.
Because of that, both Mr. Wagoner and Mr. Ghosn need their numbers to look good leading up to the mid-October deadline for a decision on whether to join forces.
G.M. in particular must bolster Mr. Wagoner?s argument that it has benefited from its turnaround plan, announced last November, to close all or part of a dozen plants and eliminate 30,000 jobs through 2008. The most immediate milestone is set for July 26, when G.M. is to announce second-quarter results.
G.M. posted an overall profit in the first quarter, despite losing half a billion dollars on its North American operations. Analysts are forecasting that G.M. earned about 46 cents a share during the second quarter, in contrast to a loss of 56 cents a share in the same quarter last year. (G.M. no longer provides quarterly earnings guidance.)
A stronger-than-expected performance in the second quarter would give Mr. Wagoner more ammunition to use against Mr. Ghosn?s arguments. That is something he may not get in the third quarter, when analysts are forecasting razor-thin profits at best.
One reason is that sales of G.M.?s new sport utility vehicles such as the Chevrolet Tahoe, which helped fuel its first-half profits, are already slowing. Luckily for Mr. Wagoner, however, the third-quarter results probably will emerge after the two sides conclude their exploratory talks.
In turn, Mr. Ghosn wants Nissan?s American sales to start picking up quickly, to silence critics who say that the Nissan comeback has stalled.
Last week, Mr. Ghosn said he was confident that would happen, now that dealers are receiving the Versa, a small car that is among a flock of new fuel-efficient models from Toyota, Honda and Chrysler to reach the market this year.
Other models also need to do well, like the new version of the Nissan Quest minivan, which is now in showrooms, and the updated Altima family car, due this fall.
The two men have something else in common: the desire to appease Mr. Kerkorian, who has lost money on his 56 million shares of G.M., which were worth $1.53 billion at Friday?s closing price.
In the 14 months since Mr. Kerkorian began acquiring his stake, Mr. Wagoner has already been challenged twice by his camp: first in a speech in January by Mr. Kerkorian?s associate, Jerome B. York, urging G.M. to move faster on its overhaul, and again by the suggestion of the alliance.
Concluding talks too quickly could bring on another volley from Mr. Kerkorian, who bedeviled Chrysler executives during the 1990?s when he was that company?s biggest shareholder before its merger with DaimlerBenz.
For his part, Mr. Ghosn also needs to justify Mr. Kerkorian?s faith that he, along with Renault and Nissan, can bring something that G.M. lacks, analysts said. He also has his own promises to live up to: last week, Mr. Ghosn vowed that the negotiations could, in the words of another song, be the start of something big.
No matter how the discussions go, both Mr. Wagoner and Mr. Ghosn also must contend with circumstances beyond their control, namely the uncertain situation in the Middle East, which has sent oil prices to record levels.
Given the global situation, G.M., Renault and Nissan may not be so unlikely an arrangement once the two sides sit down to talk.
The discussions could become something that ?no one seems to notice as they hurry by,? in the words of Mr. Bacharach?s tune.
- Posted in : Uncategorized
- Author : arnold
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