The Trio that Could Transform Autos
When billionaire investor Kirk Kerkorian's Tracinda Corp. investment firm on June 30 went public with its intention to push General Motors (GM)—in which he is a 10% shareholder—to line up with France's Renault and Japan's Nissan, the instant buzz was that it would create a potentially powerful three-way alliance. The triumvirate would shake the auto business far more than the merger a few years ago that formed DaimlerChrysler (DCX) (see BusinessWeek.com, 6/30/06, "See Kirk Makes His Move on GM").
Sure, the tripartite alliance would sell 14.3 million cars and trucks a year and have joint revenues of $327 billion. The three carmakers could share a dizzying array of engines, parts, and vehicle platforms, plus flex their combined muscle with huge marketing and distribution chains that are deeply rooted in every atuo market around the globe.
But that's not the troika that will really command attention. The one to watch is the emerging alliance among Kerkorian, his deputy and GM board member Jerome B. York, and Carlos Ghosn, the chief executive of Nissan and Renault, which has a controlling 33.4% stake in Nissan. "These guys are players, and they want to play at the big league level," said David E. Cole, executive director of the Center for Automotive Research in Ann Arbor, Mich.
The earth-shaking possibility looming on the horizon is that the three power brokers could end up gaining a big hand in running GM. Sources say that when GM's board met by teleconference at noon on June 30, the company's directors mostly were receptive to the possibility of a tie-up with Renault-Nissan. A minority of members said York should have taken the idea straight to GM Chairman and CEO G. Richard Wagoner Jr. rather than holding private meetings with Ghosn. Sources say even board leader George M.C. Fisher, long a Wagoner supporter, agreed to at least explore options.
Sources say Wagoner feels threatened by the possibility. There may be good reason. York has publicly expressed his admiration for Ghosn and his quick turnaround at Nissan. The former IBM (IBM) and Chrysler chief financial officer has also made rapid-fire suggestions for how to fix GM, suggesting dissatisfaction with Wagoner's leadership. GM, Renault, and Tracinda have declined comment beyond the statements released June 30.
York's power play could be a Trojan horse strategy, promising the gift of engineering synergies in an alliance but ultimately moving to bring in new leadership at GM. If GM's board buys into the idea and Renault gets a large minority stake, at the very least Ghosn will almost certainly get a seat on the board. Once he gets his nose under the tent, the possibility of Ghosn taking a bigger role becomes more than York's wishful thinking.
THREAT TO WAGONER?
GM's board will meet by teleconference on July 7. And if they agree that they should try to forge a deal with Ghosn's alliance, then GM's directors will at least open the door for a possibile change in management. Depending on how the situation plays out, this could be the biggest threat to the career and leadership of Wagoner.
Wagoner has been under plenty of fire over the past 18 months. GM lost $10.6 billion last year. The company made a small paper profit of $445 million in the first quarter but continues to burn cash. Since Wagoner became chairman in May, 2003, GM has lost 3.5 points of market share in North America and dissolved—with costly write-downs—just about every investment in foreign carmakers that he and retired GM Chairman Jack Smith made.
It got so bad that in April, board leader Fisher felt it was necessary to give Wagoner a vote of confidence. Since then, Wagoner has won some breathing room as his restructuring moves and cost cuts have gathered steam.
That's one reason why Kerkorian and York have a big sell job ahead of them. Wagoner still runs GM with the backing of his board.
But York and Kerkorian aren't happy with GM's progress or long-term prospects. How might the current situation play out? One possibility would give Renault-Nissan a 20% stake in the company, which costs a mere $3 billion these days. (To show the current state of GM, Fiat paid $2.5 billion for 5% of GM back in March, 2000.) A 20% stake would give Ghosn the right to claim at least one board seat, maybe two. Says Morgan Stanley analyst Adam Jonas: "I would not see Ghosn as a passive shareholder. I would see him coming in with heavy influence or control."
He could end up doing that even if GM's board doesn't embrace a tie-up with Renault-Nissan. Kerkorian could simply make a proposal to shareholders on his own and call for a vote.
If Wagoner opposes the idea, he will be in a tough spot. He inherited a strategy of alliances with weaker carmakers such as Fiat Auto, Suzuki Motors, Fuji Heavy Industries, and Isuzu Motors from Smith and then fostered them. He dissolved those alliances later, but only when GM needed the cash. So it will be tough to make the case that after pushing an alliance strategy with weaker auto makers, that GM would gain no benefit from a deal with Renault-Nissan.
Ghosn clearly has a relationship with York and Kerkorian. He met with York in London in May. The two saw eye-to-eye on enough issues to get a meeting between Kerkorian and Ghosn together the next month in Nashville, the site of Nissan's new North American headquarters, say people familiar with the situation.
York has had his eye on Ghosn for some time. He stated in a speech in January that he hoped GM would execute a fix-it plan as quickly as Ghosn did at Nissan.
The timing might not be great for Ghosn. He is running two companies, and Renault is in the midst of a restructuring. Nissan also has problems. Taking on even an active director role with GM would be a massive burden for him. "It's hard to see Ghosn running all three companies," says Joseph S. Phillippi, president of AutoTrends and a former Wall Street analyst. "He has major issues with Nissan in North America and issues with Renault in Europe."
Maybe, but Ghosn has a history of taking on what others deem impossible. And he seems plenty primed to jump into the seemingly intractable situation at GM.
At the moment, the whole matter now is up to GM's board. York's play will test how much support Wagoner has among his directors or whether they are brazen enough to make big changes for an auto company that has been in decline for decades. If York can muster enough support, this could be the radical management shakeup that many critics say the company has needed.