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Sunday, July 9, 2006

Skeptics abound that alliance is worth the effort


Staff writer

Despite earlier reports that General Motors Corp. Chairman Rick Wagoner and other executives were opposed to forming an alliance with Nissan Motor Co. and Renault SA, GM's board of directors on Friday gave the green light to start negotiations that could lead to the world's biggest automaker alliance.

But many industry analysts and insiders are skeptical about the potential alliance, saying even if it comes to fruition none of the three companies can expect major benefits.

Some analysts see the alliance proposed by GM's major shareholder, billionaire investor Kirk Kerkorian's Tracinda Corp., as merely aimed at boosting GM's stock price in the short term.

"It is more about increasing capital gains by using (Nissan CEO Carlos Ghosn's) fame than trying to rebuild the company," said Shinji Kitayama, senior analyst at Shinko Securities Co., adding that holding the talks is intended to give investors the impression that GM would carry out a drastic reform through a tieup with Ghosn, a well-known cost-cutter.

True, Ghosn's record is impressive. He turned around ailing Nissan after he was sent there by Renault in 1999. Renault now owns a 44.4 percent stake in Nissan, which in turn owns a 15 percent share of Renault.

The boards of directors at both Nissan and Renault already agreed last Monday to start negotiations with GM. There were also reports that Renault and Nissan could buy up to 20 percent of outstanding shares in GM.

Analysts say Nissan has enough cash flow to take such a stake in GM without affecting its financial status, but there is little chance of a huge benefit for the Nissan-Renault side.

According to Kitayama, the only benefit for the Nissan-Renault side would be to satisfy any ambition Ghosn might have about running the world's biggest auto alliance.

"What GM needs to do is to cut costs on its health-care fees, pensions and labor," he said. "That can be done without a tieup with Nissan and Renault."

And whether economies of scale could be a plus for the three companies has yet to be analyzed.

Osamu Kobayashi, a director at Standard & Poor's, said an alliance would give all three better bargaining power in procuring car parts globally at lower prices, which could lead to cost cuts.

But at the same time, the three sides would face the difficulty of coordinating how to cooperate with each other in the markets where they strongly compete, such as GM and Renault in Europe and GM and Nissan in North America, Kobayashi said.

"It would be a management challenge for all the parties to draw up and carry out a plan to maximize the results of the alliance," he said. "The procedure is likely to take much time."

A three-way alliance would also affect GM's current business ties with Toyota Motor Corp., another global leader in the auto industry.

Toyota has been a business partner with GM. They established a joint auto assembly plant in 1984 in North America. They are also cooperating in developing technology for environmentally friendly cars.

Asked where Toyota-GM ties may be headed, Kobayashi said it is too soon to know if GM will decide to cut its ties with Toyota. Toyota executives are reportedly furious that GM could line up with rival Nissan.

Top leaders of other global carmakers have been dubious, saying they doubt the proposed alliance will ever work.

Honda Motor Co., President Takeo Fukui said in India last week that competition among automakers in the coming decade will be about developing new technology and building brand name, not about scale.

"I have doubts about what the (proposed) alliance wants to achieve," Fukui said.

DaimlerChrysler Chairman Dieter Zetsche said Wednesday in a news conference in Tokyo that it would take some years to benefit from a merger because a system would have to be set up under which the participants would coordinate their cooperation.

His company is the result of a megamerger in 1998 between Daimler-Benz AG and Chrysler Corp.



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