Car Bosses Quit Alliance Talks

The global alliance between the three car gaffers was called off on Wednesday, when General Motors sought compensation for its participation.

The talks about forming a three-continent automotive alliance between General Motors and the Renault-Nissan group were already chafing after last weeks Auto Show in Paris, where GM spokesman Brian Akre announced that the alliance will do more good to Renault-Nissan and suggested that compensation from the two companies will be needed.

He also said that after the alliance, GM will not be able to merge with any other company and therefore a compensation be provided to them for giving up potential opportunities.

"The parties mutually recognized that significant aggregate synergies might result from the alliance," the three companies said in a joint statement. "However the parties did not agree on either the total amount of aggregate synergies or the distribution of those benefits."

On Tuesday, GM chairman and chief executive Rick Wagoner said at a news conference that the board, after analyzing every aspect, has arrived to the conclusion that the deal will not be beneficial for the company’s shareholders.

On June 30, 2006, Kirk Kerkorian, whose Tracinda Corporation is the third-largest shareholder of General Motors, proposed a global alliance between GM and the Renault-Nissan group. With Nissan's domestic sales sagging and as well as deep financial trouble for GM, Carlos Ghosn, the CEO of both Renault and Nissan expressed interest in possibly acquiring a stake in GM.

GM held an emergency board meeting to examine Kerkorian's proposal; GM's board reaffirmed its support for CEO Rick Wagoner and GM's turnaround plans. On July 14, 2006, after a meeting with Carlos Ghosn, Rick Wagoner decided to study the matter for 90 days, including non-alliance forming ventures.

The alliance talks were called off just a few days prior to the 15 October deadline, which was to mark the end of the 90 day negotiation period. If the merger had happened, it would have positioned the companies among the top most, with 25% of the global car market and $327 billion sales.

GM shares fell nine cents to close at US$33.32 on the New York Stock Exchange.

General Motors, world's largest automaker, manufactures its cars and trucks in 33 countries. Recently it has been losing shares to Asian rivals, who have hooked more customers due to their fuel efficient cars. It is also at a disadvantage to Asian automakers because of large accumulated pension and health costs.

After undergoing heavy loses last year, GM has started a restructuring programme, which includes job lay offs and closing of plants.

Wagoner explained that the board was concerned about its turnaround efforts, which would have de-escalated due to alliance. "We felt that the complexities of working with three companies could slow us down," he said.

Kerkorian's Tracinda Corp. said Wednesday that it was disappointed about the end of the alliance talks.

"We believe that General Motors' participation in a global alliance with Renault and Nissan would have enabled GM to realize substantial synergies and cost savings," Tracinda spokeswoman Carrie Bloom said in a statement. "We regret that the board did not obtain its own independent evaluation of the alliance."

Wagoner said they have yet not spoken to Tracinda about the decision, but terminating the talks was an undisputed decision by GM's board, who met on Tuesday to pencil out the possibilities of the alliance.

David Cole, chairman of the Ann Arbor-based Center for Automotive Research, said that GM has just started to reap profits and an alliance was not as attractive to it as it was a few years ago.

"The last thing GM was going to do was, in a sense, give a competitor that economy of scale," he said.

Since the talks with GM have collapsed, hearsays are that Renault-Nissan could transfer its sights for a coalition to another U.S. automaker, Ford Motor Co.

"Right now we're looking at things, but we've had no contact with Ford at this point that I'm aware of," said Fred Standish, director of corporate communications for Nissan North America. "But we don't know what the future may hold."