AFSCME 3357-HOF'S BLOG

Renault-Nissan to Buy Stake In GM?

Kirk Kerkorian's Tracienda company, a large minority investor in General Motors, has sent a letter to General Motors conveying an indication of interest by Renault-Nissan to buy a "significant minority interest" in General Motors. So is this a sign of a turn-around for General Motors, or a sign that the vultures have started circling the carcass to pick off the juicy bits? Perhaps it's a little of both.

What would the combination look like? Though the letter speaks of synergies between the two companies, both companies are so diversified now that I doubt the synergies would justify a full fledged merger. Moreover, Would Renault-Nissan risk sinking from GM's liabilities? Of course not. Nissan-Renault would not risk anything it couldn't afford to lose. Instead, the likely short term agreements would involve R-N purchasing a single digit percentage of GM's stock, probably a new class of stock created just for this purpose. The stock sale would be accompanied by distribution agreements, cooperation on component parts and technology sharing. These agreements would put Renault-Nissan in a position to buy off choice technology in the event of a General Motors bankruptcy. In a best case scenario (best for R-N anyway), GM would go bankrupt and Renault-Nissan would submit a Chapter 11 plan to give a significant amount of money to otherwise-stiffed creditors in exchange for wiping out all unfavorable contracts and operations, not to mention wiping out all existing shareholder equity in the process. Still, the rank and file workers would probably come out better in this scenario than other post-bankruptcy scenarios because only with a single company picking up most of the pieces is there any chance of revival of any entity that even bears a passing resemblance to the old General Motors.

Assuming GM did not go bankrupt, what would Renault-Nissan get out of the deal? As big as the combined Renault-Nissan enterprise is, General Motors is larger, with a broader product line and broader distribution. Renault has been looking for North American distribution for some time now, and a GM agreement could be the ticket. Nissan and Renault have no presence in heavy trucks over much of the world, whereas GM is a leader. In the recent past, GM has scored a home run with its purchase of Daewoo. Renault could piggy-back on Daewoo. GM's distribution network in 2nd tier markets such as Canada, Australia and most of Latin America is stronger than Renault/Nissan's.

What would GM get out of the deal? Mainly money, money and time. Renault and Nissan have some technology that would be useful. Nissan has a 3.5 liter engine that is more powerful and cheaper to produce than the comparable GM 3.6. Nissan affiliate, Jatco, is the largest maker of CVT transmissions. GM would also get access to Carlos Ghosn, the turnaround specialist who took a basket-case Nissan and turned it into the most profitable automaker in the world.

Where does the UAW figure in this? Good question. I don't know. In theory, the UAW could try to use the deal to get into one or more of the domestic Nissan facilities. I don't see Nissan agreeing to that. More likely, the UAW could negotiate to have Renault models "domesticated" in an otherwise idle GM plant. When it comes down to it, any plan that increases the odds of survival of General Motors is beneficial to the UAW and the retirees who rely on General Motors for their healthcare and other benefits.

Overall, I think there is room for a win-win agreement here, and I wouldn't be surprised if they get a deal done. Will a deal be enough to save General Motors? We'll see.