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Auto alliance unlikely . . . for now

Marketplace Staff Sep 28, 2006

KAI RYSSDAL: Billionaire Kirk Kerkorian’s either the shrewdest man on the planet, or he’s got more money than he knows what to do with. Kerkorian announced today he wants to buy another 12 million shares of General Motors. Add that to the pile he’s already got and it would give him a 12 percent stake in the carmaker. I would have added “struggling” right about there, but GM shares hit a 52-week high on the news. And company executives say GM is well on its way to a turnaround.

That said, GM CEO Rick Wagoner’s in Paris this week. He’s meeting with Carlos Ghosn, who runs both Nissan and Renault. The two have been talking for months about a possible alliance of some kind.

Joe White is the Detroit bureau chief for the Wall Street Journal. Joe, first of all, what is the latest on these talks?

JOE WHITE: Well, they’ve agreed to keep talking for another three weeks until October 15. That said, there are a lot of signs and signals that these talks aren’t really going anywhere because the two sides just have very different views of the potential value of a tie-up among these three: GM, Nissan and Renault. Basically, our information is that Renault and Nissan see a lot of potential value because they have a successful alliance. GM sees less potential value because their experience with alliances has been pretty bad.

RYSSDAL: Does GM perhaps think it doesn’t need as much help because it’s banking on its own turnaround plan?

WHITE: Absolutely. I mean, it’s pretty clear in interviews I’ve had with senior executives that they feel like their turnaround strategy is gaining traction. They feel that they are working out a lot of the problems that held back their performance. One example, they’re confident that they’ve finally got their produuct development working as one global unit. Which means they can design cars one place and sell them around the world. You’d think GM would have had that figured out a long time ago, but they didn’t. So, the GM management feels like, “Hey, we’ve got a lot of work to do in our own house. This is kind of a distraction and we don’t see the big value that the other guys see.”

RYSSDAL: Are you buying the fact that GM can turn itself around?

WHITE: Well, I think that General Motors has done a lot of very hard work to get themselves up off the floor. They lost more than $10 billion last year &mdash it was pretty disastrous. And they’ve certainly improved from that base. What’s not so clear is whether they’ve taken all of the hard restructuring moves that they’re gonna have to take to eliminate the competitive imbalance that they have against Toyota, particularly. Toyota still can sell cars for more and build them for less money in the United States and in other places around the world than GM can. It’s a tough balance. You can’t spot Toyota $1,000 a car and win.

RYSSDAL: So Carlos Ghosn is talking to GM. He’s the guy who runs Nissan and Renault, of course. He was in the papers the other day saying, “Well, maybe if not GM, what about Ford?” I mean, is that where this is going to go? That he just wants to hook up with anyone in the American markets?

WHITE: Well, we had . . . I was part of a group of reporters that had dinner with Mr. Ghosn in Paris last night, and he does not really talk about it that way. His attitude is that he’s got some work to do in his own house, and Renault particularly, where they’re just starting a plan to boost their profitability. My sense is that he is not in a huge hurry to do a deal with one of the big North American automakers. However, when the opportunity is right, I think he will try to rekindle this idea. Because, I think, long-term, he does think such an alliance would be beneficial, certainly to his two companies. But I don’t think he wants to just dive from one deal to the next if he doesn’t ahve to.

RYSSDAL: Joe White’s the Wall Street Journal’s Detroit bureau chief. We reached him in Paris. The auto show’s going on over there. Joe, thanks a lot for your time.

WHITE: You’re welcome.

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