The General Motors’ board’s unanimous vote to reject the proposed alliance with the Renault-Nissan Alliance, with no abstentions or absences, has led Global Insight automotive analyst Aaron Bragman to conclude that Tracinda executive and GM board member Jerry York, one of the proponents of the alliance talks, also voted to reject the alliance. Bragman has also concluded that a similar alliance proposal would make no sense for Ford, either.
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“The ending of the negotiations leaves the door open now for another partner to enter talks with Renault-Nissan; namely Ford. Carlos Ghosn has stated that he is determined to have a North American partner for the Renault-Nissan alliance, and with DC maintaining that Chrysler is not for sale, Ford is the only other option,” Bragman said in a research note on Wednesday.
“Unfortunately, the two things that Ford needs most are the things that Renault-Nissan will not and cannot provide: cash and a product guru. Either way, we expect Ford will be approached after a brief cooling off period, but that like GM, an alliance with Renault-Nissan does not make sense for Ford.
“Wagoner left the door open for potential discussions with Renault-Nissan for smaller projects that are limited in scope, but stated that Renault-Nissan is not currently focusing on items of that size. This now frees GM to continue its strong restructuring efforts, while allowing Renault-Nissan to actively pursue Ford as a potential alliance partner.”
GM chairman and CEO Rick Wagoner officially announced at a late press conference on Wednesday (4 October) that the GM board of directors had unanimously voted to end alliance talks with rival automakers Renault-Nissan. The main reason, he stated, was that not enough value was created for GM shareholders from the potential results of the proposed alliance, and that the two companies could not agree on a specific plan of compensation for what was universally agreed to be an alliance skewed in favour of Renault-Nissan in terms of synergies and value creation.
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By GlobalDataGM reportedly requested several billion dollars in return for what it viewed as compensation for synergies that favoured Renault-Nissan (and of the two, Nissan in particular) more heavily than GM, a request which Renault-Nissan flatly rejected.
Noted Bragman: “Of great interest is Wagoner’s emphasis that the board decision was unanimous, with no absences or abstentions. While Wagoner did not directly state that it was so, this implies that GM board member and Tracinda executive Jerry York also voted in favour of rejecting the alliance. Tracinda is the holding company controlled by billionaire investor Kirk Kerkorian, who personally spurred the alliance talks into fruition by approaching Renault-Nissan CEO Carlos Ghosn directly. Recently, Tracinda representatives have requested independent evaluation of the potential deal through outside firms. Wagoner stated that the evaluation of the proposed alliance was undertaken by GM management, but also involved independent financial advisors from Goldman-Sachs and Morgan Stanley.
“Combined with the recent bylaw amendments approved by the GM board to require a majority vote of shareholders to approve or reject potential board members, this unanimous board of directors rejection of the proposed Renault-Nissan alliance seriously hampers Kirk Kerkorian’s influence over the direction of GM.
“The board vote serves two purposes: it not only affirms that GM feels that its opportunities for success alone are greater than in combination with that specific partner, but it also sends a resounding affirmation to the GM management that the turnaround plan enacted by Wagoner is where the board feels the company should go.”
Bragman said he thought GM was right to reject the proposal.
“The benefits offered through an alliance with Renault-Nissan provided negligible for GM: economies of scale, platform-sharing, joint development of advanced technology all are qualities that GM already possesses, or is working to implement. GM has an extremely strong product director in Bob Lutz, is seeing better than expected results from its turnaround plan, and is shedding excess capacity and addressing legacy costs through buyouts of workers. It has global reach for products, is implementing a global management strategy in order to utilise potential synergies already in place among its divisions, and is enjoying a good position in growth markets. It has product in the pipeline that should begin to address the needs of American consumers as well, the market in which it needs the most change in order to succeed. It has a JV with BMW and DaimlerChrysler to develop advanced hybrid technology, and has consistently funded development of its fuel cell programme. It has divested itself of ventures that did not create value, such as the equity stake in Subaru, freeing up cash for other purposes.”
He added: “A tie-up with Renault-Nissan would have created a company larger than Toyota, but bigger is not necessarily better when combating the powerful Japanese automaker. In order to do that effectively, streamlining of procedures and marked improvements in agility are required. The only serious thing that Renault-Nissan could offer that would have made a difference is cash, and this was the thing that apparently Renault-Nissan flatly refused to provide.”
