Blog: Dave LeggettGM supplier base: where's the fat?

Dave Leggett | 11 July 2006

Should GM be part of a grand alliance with Renault and Nissan? One of the problems with this question is understanding some of the underlying politics at work. Shareholder Kirk Kerkorian wants to keep the pressure on GM’s management to move faster and further in restructuring believeing that therein lies greater shareholder value.

He is heading a rebel faction that appears reluctant to give GM’s management any credit at all in its efforts to grapple with its humungous domestic problems.

And he is also attracted to the idea of getting an outsider in. If he can play an influential role in bringing in talent, well, that could also augur well for his future influence.

Step forward Carlos Ghosn - a guy who has, undeniably, got impressive turnaround results at Nissan. Could he assume the top job in this alliance and shake things up with GM’s supplier base? That’s basically what happened at Nissan when he challenged the cosy Keiretsu family business mentality and slashed costs. Nissan was on its knees at the time and political opposition melted away (he was also clever in how he did it with cross-functional committees that built a consensus inside the company).

Maybe Ghosn relishes a new challenge now (particularly as the headwinds on Renault and Nissan may be getting a little stronger) and believes that there is low-hanging fruit at GM. If he could pull it off, the three-way GM-Renault-Nissan alliance would certainly be a considerable force in the global auto industry. And Kerkorian’s team have perhaps been feeding Carlos some tasty morsels of encouragement.

Would the Ghosn-Nissan revival plan approach work at GM? It is a very different proposition to Nissan in 1999. The potential for procurement cost savings looks a lot less (though I would bet that Ghosn would want to reduce GM’s swollen brand count). The strong suspicion is that GM’s US supplier base isn’t actually all that fat.

Also, GM already enjoys huge scale economies in North America, so it is hard to see a scale benefit. In addition, GM has a strategy for global markets that is coming together (and there is certainly no desperate need for product engineering integration with Renault and Nissan). There are even signs of improvement in the US, significant glimmers of light in the gloom. And GM cost restructuring is happening.

And now that GM’s board has agreed that GM’s management will speak with Renault, Tracinda says it wants a more independent committee formed for these preliminary discussions. It’s almost becoming a soap and a real-time metaphor for America’s relative industrial decline in the rapidly shifting sands of the global economy.

And like all the best stories, it has us on the edge of our seats.

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