Nov. 7 (Bloomberg) -- Carlos Ghosn should focus on managing Renault SA and Nissan Motor Co. through the worst auto-market slump in years as merger talks between General Motors Corp. and Chrysler LLC hamper his quest for a U.S. partner, investors say.

``Ghosn needs to concentrate on his companies now, because they're both suffering,'' said Koichi Ogawa, who helps manage $28 billion at Tokyo-based Daiwa SB Investments Ltd. Nissan and France's Renault should tighten the screws at home rather than invest abroad as the credit crisis ``pushes the global economy toward recession,'' he said.

GM, considered a potential partner by Ghosn even after the biggest U.S. automaker rebuffed his last approach in 2006, has held talks over a possible government-funded combination with Chrysler, which had been increasing cooperation with Nissan. The Tokyo-based company and Renault, both led by the 54-year-old chief executive officer, aren't likely to offer a better alternative.

Nissan slashed its full-year profit forecast by more than half on Oct. 31 after global auto markets plummeted. Renault had already cut its guidance, in part because Nissan won't contribute as much to profit as the automakers expected. The pair's struggles, reflected in industry-leading stock declines, may thwart Ghosn's U.S. ambitions.

``Both Nissan and Renault are in a tough situation and they're eating up cash,'' said Koji Endo, a Tokyo-based analyst at Credit Suisse, which has a ``neutral'' rating on Nissan and recommends selling Renault stock. ``It's not wise to do anything with the Big Three while their fate is still unclear.''

Lagging Stocks

The French carmaker's shares have plunged 77 percent this year, the worst performance in the nine-member Bloomberg Europe Autos Index, and Nissan has dropped 66 percent, compared with declines of 43 percent for Toyota Motor Corp. and 40 percent for Honda Motor Co.

Ghosn said in 2006 that an alliance with GM could save the companies $10 billion, including production and purchasing costs for Nissan. Renault executives and advisers continued to discuss potential deals involving GM until at least the middle of this year, according to people with knowledge of the matter.

Nissan, which announced -- and then extended -- a manufacturing alliance with Chrysler in the first four months of the year, explored deeper cooperation with the No. 3 U.S. carmaker while declining to pay cash for a stake, people familiar have said. The Japanese carmaker acknowledged Aug. 7 it was talking to Chrysler about expanding their partnership.

Ghosn Says `Speculation'

``Deals involving cash won't happen'' in the current economic slowdown, Ghosn said last week, except where car companies ``have access to a big pot of cash coming from government'' or another external source. Speaking at a Tokyo conference, he called reports of talks about a Nissan-Chrysler tie-up ``speculation.''

GM, which has lost almost $70 billion since 2004, is among automakers eligible for $25 billion in government loans to retool plants, while sales-financing operations may benefit from a $700 billion fund to bail out bad loans. A White House spokeswoman confirmed Oct. 28 that the administration was ``in contact'' with GM, Ford Motor Co. and Cerberus Capital Management LP's Chrysler over possible aid to the so-called Big Three U.S. automakers.

Ghosn burnished his reputation as ``Le Cost Killer'' for his turnaround of Nissan, starting in 1999. Six years later he took up the top job at Renault, which owns a 44 percent stake in its Japanese affiliate.

Nissan Adjusts

Nissan said last month it would review its dividend goals, after net income plunged 39 percent in the last quarter. The company also announced a lower-priced version of its Versa small car for the U.S., along with interest-free financing for its five best-selling models.

Nissan's profit slump makes it difficult for Ghosn to meet his pledge of a 4.50-euro annual dividend for Renault shareholders. France's second-largest carmaker, based in Boulogne-Billancourt, had already cut its full-year earnings guidance Oct. 23 and ordered domestic plants to close for two weeks to help clear stocks of unsold vehicles.

``The alliance needs some serious cost-cutting at both ends,'' said Philippe Houchois, a London-based analyst at UBS, which recommends buying Renault shares and has a ``neutral'' recommendation on Nissan. ``Renault's balance sheet can't take on the kind of risks involved in adding a third partner.''

GM and Auburn Hills, Michigan-based Chrysler have declined to comment on their talks. Detroit-based GM wants $10 billion in government aid to accompany a tie-up, two people familiar with the discussions have said.

Discounting Ghosn

The two U.S. carmakers ``are in a fight for their survival,'' said Maryann Keller, an independent auto analyst and consultant in Greenwich, Connecticut. ``If Ghosn stepped in with a couple of billion dollars he'd be a factor, but he's not going to do that.''

His Nissan rescue worked because the carmaker's liquidity problems could be solved through asset sales, Keller said. ``By comparison, Chrysler is an empty pit.''

The U.S. auto market is heading for a third consecutive decline and a 15-year low in 2008. Sales plunged 32 percent last month, for an unbroken 12-month slide, the longest since 1990-1991.

Europe's car-sales slump is also gathering pace. September's 8.2 percent drop in registrations confirmed the region's longest decline in three years, dragging year-to-date sales 4.4 percent lower.

Cooperation

For Chrysler, a takeover by GM would prevent or complicate further vehicle agreements with Nissan. The Renault-Nissan alliance, which is developing electric cars for introduction in 2010, might have benefited from a deal to supply the vehicles to Chrysler, increasing production and helping to amortize their investment in the first years of sales.

A GM-Chrysler combination should have ``no impact'' on Nissan's existing cooperation, Credit Suisse's Endo said. ``It helps Chrysler boost volume, so I don't see any reason for GM to oppose it.''

Dearborn, Michigan-based Ford, with the strongest cash position among U.S. carmakers, is pursuing a solo recovery.

Nissan decided earlier this year to scrap its struggling Titan pickup truck, which has contributed to a 3.4 percent decline in the company's U.S. vehicle sales in the first nine months. Instead, Chrysler is to build a new Nissan-branded pickup, while Nissan will assemble two small Chrysler cars to be introduced in 2009 and 2010.

``We intend to carry through with all three product deals,'' Nissan spokeswoman Pauline Kee said in an interview, when asked about the consequences of a GM-Chrysler tie-up.

Standard & Poor's predicts that Chrysler and GM may run out of cash in 2009 as dwindling demand pushes U.S. auto-industry sales to the lowest since 1991. Chrysler, which isn't required to publish earnings, has indicated that its first-half loss exceeded $1.08 billion.

To contact the reporters on this story: Laurence Frost in Paris at lfrost4@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

Last Updated: November 7, 2008 07:24 EST