GM Death Watch 84: Going, Going, Ghosn
Monday, July 10, 2006
After carefully considering the potential benefits of a GM - Nissan - Renault alliance, auto industry analysts have concluded that the deal makes about as much sense as Finnegan's Wake. Well duh. Anyone even vaguely familiar with GM's current crisis knows there's only one thing the General needs right now: vehicles that people want to buy, at a price that makes the company a profit. This they don't have. And guess what? Neither does Nissan. The Japanese automaker's sales are also in freefall, pending new product coming down the pike. Even if Nissan and GM and Renault could work together (a completely preposterous concept), you'd see a second gen Chevrolet Camaro before you'd see a hit product. No, there's something else in play here, and it's not what you think.
To understand the engine powering this weird-ass multinational deal, or why it's progressed to the point where GM CEO Rabid Rick Wagoner and Nissan - Renault boss Carlos "The Jackal" Ghosn are headed for a Bastille Day chin wag, you have to understand each player's motivations. Let's start with the man who got the mutant ball rolling: Kirk Kerkorian.
As we've said before, the Quiet Lion has one motivation: transforming his billion dollar loss on GM shares into a profit. From that perspective, convincing Nissan - Renault to buy up 20% of GM's stock makes perfect sense. Although GM Board Member Jerry York is legally prohibited from divulging inside information, it's not entirely outside the realm of possibility that York could have communicated The General's cash position to his former boss. Kerkorian's game of footsie with the foreigners would add $3b to GM's kitty. That could be enough money to protect Kirk's position; keeping GM afloat until the end of the year, when cash from the sale of its GMAC finance unit finally arrives.
At that point, GM would enter another one of those endlessly reoccurring "false dawns." Kirkorian could sell off his stock at a profit and die in peace. Despite the fact that TTAC's sources reveal that GM's cash position is slipping well below $10b every month "perilously close to the $5b pad it needs to stay in business" deal dismissive analysts don't see cash as a factor. They believe Kirk's play was/is designed to get Nissan - Renault in, to get Rabid Rick out, to put Carlos Ghosn in. If so, why didn't Kirk simply attack Red Ink Rick's rep head-on? The CEO's administration has been an unmitigated disaster. And it's not like Kirkorian is the shy, retiring type (so to speak).
Anyway, if that was Kirk's play, it died double quick. During a hastily-arranged, hour-long conference call with Nissan - Renault's reps, GM's Board of Bystanders hashed-over the possibilities of hooking-up with their competition. No sooner had they hung-up the phone than they moved to quash the Quiet Lion's ambitions. GM's conclave of corporate co-conspirators charged Rick Wagoner with the task of further exploring a GM - Nissan - Renault alliance. The appointment assured a less than positive recommendation on the plan and a competitive entry in The Most Bizarre Business Meeting of the Year award.
GM's Board quite rightly perceived Nissan - Renault as rapacious raiders, and sent their main man to defend GM against the barbarians at the gate. Yes, it's true; in all the coverage devoted to Kirk's Machiavellian machinations, very few pundits have trained their analytical abilities on Nissan - Renault's motivations for even entertaining an expansion of their current alliance. Why would this conglomerate, a multinational automaking concern whose own corporate turnaround seems to be faltering at the final revolution, want to add GM's problems to its own? Just as Nissan - Renault have nothing to offer GM, GM has nothing to offer Nissan - Renault. Nothing right now, that is&
Imagine you're the CEO of a large, multi-national automaker, and you reckon GM is going to go bankrupt. Some old guy walks up to you and says, "Pssst. Hey, want to buy 20% of GM cheap? Three bil and it's yours." It's not all that bad an idea. First of all, you can afford it; three billion isn't pocket change, but it's not a whole lot of money in the grand scheme of things. Second, if and when the bankruptcy papers are filed, your stake gives you some major advantages. Not only do you get to say what assets are sold, but there's nothing to stop you from buying those assets, at a price you help set. Sweet.
Of course, it would be in your best interest to keep that plan to yourself. Publicly, you'd express confidence in GM's current management, and find some plausible reasons why your "investment" that didn't smell like vulture droppings. You'd meet with Rabid Rick and tell him that you're happy to stand back and enjoy the fruits of his labor. And you'd be telling the truth.