New Ad Campaign for GM: Buy One Suburban, Get a Free Renault in the Trunk

Well, perhaps that’s being a bit hasty. The Wall Street Journal, NYTimes (biz section) and Financial Times all led online Tuesday with the proposed 3-way alliance between the sputtering giant GM and Carlos Ghosn-led Nissan and Renault. On Monday, Nissan and Renault’s boards voted to begin exploratory discussions, if GM “makes the proposal,” forcing GM’s CEO Rick Wagoner to make the next move. The plan floated by billionaire investor Kirk Kerkorian, who owns 9.9% of GM, would see Renault and Nissan each purchasing 10% stakes in GM. It is seen by analysts as a direct threat to Wagoner’s control of GM’s turnaround, which Kerkorian sees as proceeding at a painfully soporific pace. See http://www.nytimes.com/ 2006/07/04/business/04gm.html?_r=1&oref=slogin.

The NYTimes has extensive coverage here and it lays out the besieged Wagoner’s options: (1) Refuse to talk to the two suitors and risk damage of publicly refusing to consider Carlos Ghosn’s ideas—who sports an impressive history in turning Nissan around; or, (2) Negotiate in order to stall for time and let Kerkorian move next.

In the latter case, Kerkorian could, (a) increase his GM holdings, which he’s unlikely to do, due to added regulatory burdens, (b) convince GM shareholders to tender their stock to Renault or Nissan, but the two companies might not want to buy without GM’s backing the plan, (c) look for bigger partners, such as Toyota or Honda, or (d) challenge the current GM board with his own list of directors, but such a massive change would most likely have to wait until GM’s annual shareholders meeting next year. See http://www.nytimes.com/2006/07/04/business/ 04gm.html?_r=1&oref=slogin.

Instead of focusing so much on the personal contest between Kerkorian and Wagoner, the WSJ looks at the implications a potential alliance could mean for the auto industry as a whole. As the paper points out, the scale of the three companies, if borne out in purchasing savings and shared costs of new model and technology development, would ramp up pressure on other major auto manufactures to consolidate—not through mergers, but by partnerships, such as this, since they are seen as less risky. Surprisingly, the NYTimes is essentially AWOL on the industry-wide impact. See http://online.wsj.com/article/SB115192738712996959-search.html? KEYWORDS=Kerkorian&COLLECTION=wsjie/6month.

Although its coverage so far on this story lacks depth compared to the US papers, the Financial Times delivers the missing European political angle: Watch the French, the pink paper seems to say—15% of Renault is still owned by the French government, after it privatized the corporation in 1996, and the French industry minister told French TV on Tuesday that the deal “‘…has to be approached with enormous caution. The United States is an immense market, a complicated market and General Motors is in a difficult situation because of problems that have nothing to do with cars.’” How right he is. See http://www.ft.com/cms/s/522d8150-0b8a-11db-b97f-0000779e2340.html.

News Shark’s Verdict: No one paper covered all the big angles on this story. Clearly, Wagoner does not want to respond to Kerkorian’s challenge, but Ghosn is too powerful to ignore. Sooner or later Wagoner will feel pressure from shareholders wondering, rightly, why their CEO is ignoring a man who has proven he can return a struggling global automaker to profitability.

On the other hand, is Ghosn really up to the job? He certainly has his hands full running two major automakers at the same time, and Renault is definitely still in the process of turning around, maybe even stuck, as some analysts say. Finally, are there really synergies between these three companies? Can they really share platforms, and does Renault have any chance in hell of gaining a foothold in the US market? How many Americans these days would buy a French car? Peut-être s'ils étaient libres avec chaque Suburban.