Grand Alliance Seen as Unlikely as GM, Renault Chiefs Prepare to Meet

Posted 26 September 2006 @ 04:15 pm EET     Print     Reprint     E-Mail     Comments

DETROIT, United States (AP) - A grand alliance of struggling General Motors with Renault-Nissan is seen as unlikely, analysts said ahead of a meeting in Paris later this week of the automotive giants' chiefs.

First proposed in June by GM's largest private shareholder, Kirk Kerkorian, the alliance was hailed by the market as a way to save the ailing US carmaker. Rumors soon circulated that GM's chief executive Rick Wagoner was not interested in the deal and was merely going through the motions of a 90-day study period which is set to end October 15.

Many analysts have ruled the alliance out, saying it was more likely the talks would result in a small, narrowly focused effort at collaboration such as those that GM and Ford Motor Co. used to develop six-speed transmissions or GM, DaimlerChrysler and BMW are using to develop hybrids.

Himanshu Patel, an analyst J.P. Morgan Securities Inc., said recently the body language of GM executives suggests they have relatively little interest in an alliance with Renault-Nissan.

A recent report by analysts from credit rating agency Standard and Poor's has concluded that an alliance of the three companies was now unlikely because it was too much of a risk for GM.

Any linkup between GM and Renault-Nissan also is unlikely to produce the kind of savings envisioned by GM shareholder Kerkorian, who pressured Wagoner into pursuing the study of the possible benefits of an alliance, Standard and Poor's said.

"It would have been a complete surprise if they had come up with some grand thing that was going to change the world," David Cole of the Center for Automotive Research in Ann Arbor.GM is also less in need of rescuing than previously thought, given how quickly it has advanced its restructuring plans, Cole said.

"GM is going to surprise people," he said.

Rumors of a potential alliance between GM and Ford Motor Co. or Ford and Renault-Nissan have also been circulating as the top US automakers struggle to downsize amid a steady loss of market share and massive losses.

Standard and Poor's ratings on GM and Ford remain at very low speculative grade levels, with further downgrades possible, according to the report. Unlike Ford, GM bears the execution risk of resolving its economic exposure to bankrupt supplier Delphi Corp. and the pending sale of a 51 percent stake in finance subsidiary GMAC.

"We view the automakers' accelerated cost-cutting initiatives as a necessary pre-condition to any sustained improvements in credit quality," Standard and Poor's credit analyst Robert Schulz said.

"But a successful, multi-year turnaround on the revenue and product side will also be required. In the meantime, performance in North America will remain weak for the foreseeable future."

Meanwhile, Nissan's sales in the United States have also declined, though the executives in charge of the company's American subsidiary are predicting a recovery this fall as the company rolls out several new models.

But Renault-Nissan chief Carlos Ghosn appears to be committed to the idea of an alliance that would allow Nissan to expand its production capacity in the United States without the need of massive capital investments.

The alliance "could be realized under two conditions; finding synergies and similar tastes on the part on the directors of the three companies," Ghosn said in an interview with the French newspaper Le Parisien published Monday.