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The Honolulu Advertiser
Posted on: Thursday, October 5, 2006

GM drops talks on alliance with Nissan and Renault

By Sholnn Freeman
Washington Post

WASHINGTON — General Motors Corp. rejected an alliance with Nissan Motor Co. and Renault SA yesterday, contending that it still has the size and strength to fight on its own.

GM chairman and chief executive G. Richard Wagoner Jr. said joining an alliance would distract the automaker from its turnaround. He said at a news conference yesterday in Detroit that the board voted unanimously to terminate the alliance talks. Even board member Jerome York, an adviser to billionaire investor Kirk Kerkorian — who instigated the discussions — was in favor of ending them.

The unanimity was a surprise given Kerkorian's strong interest in a deal. He owns 9.9 percent of GM's shares through Tracinda Corp.

Ending the talks was a blow to Carlos Ghosn, who heads both Renault and Nissan. An alliance was seen by some as a ploy by Kerkorian to put Ghosn in a leadership role at GM.

Wagoner said GM has made a "shocking amount of progress" in executing its turnaround plans. In the past year, GM has slashed billions of dollars in overhead, reorganized operations, cut employee medical and retirement benefits, sold large parts of the company and eliminated 30,000 jobs. Wagoner and the company's directors have also taken pay cuts.

$10.6 BILLION LOSS

GM lost $10.6 billion last year, the most since 1992. Most of the loss was in the company's North American division, where executives bet heavily on continued profits from large pickup trucks and sport utility vehicles before the market stalled.

Gary Chaison, professor of industrial relations at Clark University, said GM is giving the impression that it has turned the corner. "All you can really say with any confidence is that they are not as in bad a shape as they were before," he said.

Chaison said GM's long-term performance will hinge on future dealings with labor. He said GM's portrayal of itself as strong enough to stand alone will make it more difficult to seek concessions from the United Auto Workers union next year during contract talks.

"They still have to go to the UAW and make the case for a special break," Chaison said. "This is going to be extremely difficult for them to do because the UAW is not in the mood for further concessions."

ADVANTAGE: NISSAN

Wagoner said the advantages of an alliance would have been unfairly in Nissan's favor, making it a bad deal for GM's shareholders.

Dominique Thormann, a senior vice president at Nissan's U.S. division, argued yesterday that GM negotiators did not understand the concept of an alliance. He said the discussions were terminated because of a fundamental disagreement on how to split up the billions of dollars that could have been saved.

In short, Thormann said GM was looking to get paid. GM wanted "equalizing payments," he said.

GM asked for a "control premium" because company executives felt that by entering the alliance they might lose the ability to make deals with other companies, effectively giving up control to chart GM's future. Thormann said the demands were contrary to the "spirit of the alliance."

"They are just seeing something in black and white and very easy to measure," Thormann said. "Ultimately, it's not a shared vision. They keep talking about short-term recovery. We are talking about the long-term — a strategic vision. The alliance doesn't fix your short-term problems. It isn't what runs the company. The alliance just gives you a competitive advantage."

TARGETING TOYOTA

Ghosn and other executives have repeatedly said they saw value for all parties in an alliance. Executives also said a GM-Nissan-Renault alliance would create a company with the power to take on the growing worldwide clout of Toyota Motor Corp.

Toyota reported a 25 percent increase in U.S. sales for September, while sales by most other major automakers, including Nissan, sputtered.

GM executives think they can take on Toyota on their own. Under the leadership of Robert Lutz, GM has consolidated all its international operations. That could mean the end to the costly overlap of product development, design and purchasing. GM consolidation is saving $10.2 billion a year, about the same as a GM-Nissan-Renault alliance was predicted to save.