Monday, July 24, 2006

Ghosn: Gung-ho about GM deal

Friday, July 14, 2006
Detroit News interview
Ghosn: Gung-ho about GM deal
Renault-Nissan CEO to meet with Wagoner today
Christine Tierney The Detroit News








NEW YORK -- Carlos Ghosn, chief executive of Renault SA and Nissan Motor Co., expressed confidence Thursday that the Franco-Japanese partnership would form an alliance with General Motors Corp. that would benefit all three automakers and transform the industry.

On the day before a crucial meeting with GM Chairman and CEO Rick Wagoner, Ghosn told The Detroit News a deal would succeed only if GM's board and top managers wanted it. But in contrast with Wagoner's tepid response to the proposal made by GM shareholder Kirk Kerkorian, Ghosn was eager to move forward.

"There is a possibility that in a few weeks we'll say, we don't think it's going to happen because we don't think the prize is big enough, or we don't think the willingness from both parties is strong enough," he said in his first public comments about the proposal since it was disclosed on June 30. "But if I didn't think there was more chance that we will outline a big prize, I wouldn't be here today.

"I think the potential is big."

Ghosn, a well-traveled French national born in Brazil, is scheduled to hold preliminary talks today with Wagoner in a highly anticipated meeting.

Ever since Kerkorian went public with his proposal that GM join the Renault-Nissan alliance, there has been a surge of speculation about Ghosn's role and Wagoner's future.

In an interview in midtown Manhattan, Ghosn spoke in broad terms about a deal that would fall far short of a merger but entail strong links.

He said Renault and Nissan would probably seek stakes in GM and board seats but he ruled out the notion that he could head GM as well as Renault and Nissan.

Effort goes beyond 'casual encounter'

He said an exchange of shareholdings was "probably desirable, so as not to make it a casual encounter between different companies" but a relationship in which it would be to everyone's interest for all to benefit.

"If you have a share exchange, it would be normal that you reflect it into the board constitution, but we're not there," Ghosn said.

Reports suggest Nissan and Renault might each take 10 percent stakes in GM, investing a total of $3 billion.

The two carmakers formed their alliance in 1999, when the Japanese automaker desperately needed cash and Renault was seeking a global partner. The French car manufacturer invested $5.4 billion at the outset and now holds 44 percent of Nissan. After Nissan recovered under Ghosn's leadership, it acquired a 15 percent stake in Renault.

The two companies maintain separate managements, headquarters, strategies and brands, but they produce vehicle underpinnings jointly and share engines and other costly components.

"What works between Renault and Nissan can work between Renault-Nissan and Company X," Ghosn said. "Today, we want to discuss if Company X can be GM, if there is enough mutual interest."

Such a three-way alliance would have a strong presence in all the world's major markets, accounting for nearly a quarter of global vehicle sales.

Such a deal would bolster the prospects for Renault and Nissan in future competition against giants such as Toyota Motor Corp.

"This would define the industry for many years to come if it were to happen," Ghosn said of a three-way alliance.

"But frankly, if it doesn't work out, it doesn't mean the concept of expanding the alliance is eliminated."

Asked whether he might consider Ford Motor Co. as an alternative partner, he said: "For the moment, what we're talking about is GM."

Ghosn's stance is bound to increase pressure on Wagoner and other GM managers to at least make a genuine effort to see if there are ways that the three car companies can benefit mutually by working together.

Sources close to GM say the automaker's top bosses, worn down by months-long restructuring efforts, reacted coolly to the proposal by Kerkorian, whose Tracinda Corp. owns 9.9 percent of GM.

Exec understands GM hesitance

Wagoner told The Detroit News Tuesday that he was approaching the proposal with an open mind, but he has alluded to GM's disappointing experiences with cross-border partners in the past. Last year, it spent $2 billion to extricate itself from a souring relationship with Italy's Fiat Auto.

Ghosn views GM's wariness as natural. "You tend to be more optimistic about alliances if you have a successful one, and you tend to be more pessimistic about alliances if you don't have a successful one," he said.

"We are probably more bullish about alliances because we have one which is working well. Obviously, we have to take into consideration emotional factors and past experiences, but at this level, we have to be very lucid and very objective about what the potential is," he said.

But in comments made to reporters and editors of The Washington Post, Wagoner downplayed the potential benefits.

"As we see the current business, there is no need for additional capital," Wagoner said, adding that the turnaround plan was "pretty far along".

At today's meeting, Ghosn and Wagoner are expected to discuss areas where the three companies might work together, such as parts purchasing or shared development of engines, chassis and technology.

"First we need to define what's the prize, what's the award for the three parties," Ghosn said. All three companies will assign top managers in various areas to assess possible benefits and cost-savings and tally them up.

"After you have outlined what is the prize, then you go to the second stage -- what kind of organization you should have in order to deliver," he said. "This is where you define whether it's going to be loose, or tight."

Some analysts worry that the deal-making might distract the three carmakers from their current objectives. Renault is striving to boost its profitability, Nissan is seeking to recover its growth momentum with a flurry of new model launches, and GM is only part-way toward a recovery.

Those plans are still top-priority. "I wouldn't do anything that would jeopardize the success of the plans of each company," Ghosn said. And while most of the benefits of an alliance would emerge in the long run, some might help the carmakers in the near term. "Any potential in purchasing can be immediate," he said.

While most analysts are moderating their criticism, given Ghosn's remarkable record fixing broken operations, they question whether even he can speed up GM's recovery.

"I don't know how Carlos Ghosn could help things progress any faster than they're moving now," said Erich Merkle, director of forecasting at IRN Inc. in Grand Rapids.

Willingness to see all sides a plus

For about a year, Ghosn has been casting about for a third partner, although he stressed that Renault and Nissan were not in a hurry to expand the alliance.

"Both companies are and will be doing pretty well, and we are pretty confident about our strategy," he said.

Ghosn was first approached by Jerry York, a longtime adviser to Kerkorian and a director on the GM board of directors. Their encounter led to a meeting in June between Ghosn and Kerkorian in Nashville, after the inauguration of Nissan's new U.S. headquarters.

Ghosn described his rapport with both Kerkorian and Wagoner as good. "Can I work with Rick? Yes, sure. I have known Rick for a while," he said.

As for Kerkorian, "I think he knows what he wants, and I think he's defending his interests and frankly, I understand that," he said.

"His vision is a vision of a shareholder of GM; my vision is the vision of a CEO of Renault and Nissan and someone looking for more potential for the alliance."

Ghosn has a warm and open manner, but his business style is no-nonsense and his aides describe him as a family man with no other social life.

Currently, he spends a lot of time on the corporate Gulfstream. He is based in Paris but spends about a week out of each month in Tokyo and a few days in the United States, where he heads Nissan's North American management team.

'Timing isn't the best,' he concedes

From Ghosn's standpoint, Kerkorian's overture came at a tricky moment. Renault is at the start of an ambitious four-year plan to raise its game, and Nissan's sales and profits are declining during the first half of the Japanese fiscal year because of a lull in new model introductions.

"The timing isn't the best, but when you have an opportunity, you don't select the timing of the opportunity. You take it or you don't," he said.

"We decided to take it when this opportunity was offered by an initiative that came from shareholders of GM."

Officials set 'crisp pace' for talks

Ghosn confirmed that both Renault and Nissan will form separate teams to study the pros and cons of a three-way alliance to assure shareholders of each company that their interests are being defended.

He does not expect a long process.

"This is not going to be an open-ended discussion which is going to go on for one year," he said. "We should obviously put a certain limit to the time."

In Washington, Wagoner told reporters he expected talks to proceed "at a crisp pace."

"Everyone would want to move to a yes or no decision promptly on something like this," he said, after testifying before a U.S. Senate committee on GM's high health-care costs.

He said he and Ghosn would discuss "the full range of options."

"It would be crazy for us to reject any good idea or any thoughtful idea on how we could be more competitive in what is a pretty tough global marketplace right now," he said.

Despite the success of the Renault-Nissan alliance, Ghosn also faces skepticism within the ranks at Renault and Nissan. GM's problems are daunting -- the automaker lost $10.6 billion and its share of the U.S. auto market keeps shrinking.

DaimlerChrysler AG's pursuit of alliances in the Far East, just two years after the merger of Daimler-Benz and Chrysler Corp. serves as a cautionary tale for the industry,

Could he be overstretching himself by bringing GM into the alliance?

"Was Nissan a step too far for Renault?" Ghosn replied.

"Everybody said that was going to be a disaster, this was a step too far, two mules don't make a racehorse," he said. "I've been to that movie."

Detroit News Staff Writers Brett Clanton and David Shepardson contributed to this report. You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.








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