GM, Renault-Nissan Terminate Alliance Talks

Oct. 4, 2006
GM's insistence on payment from Renault-Nissan to compensate GM ended the talks.

General Motors Corp. and French-Japanese group Renault-Nissan said Oct. 4 they had scrapped talks on a proposed alliance after GM insisted on a hefty cash payment. The companies confirmed they fell out over GM's insistence on the payment from Renault-Nissan to compensate GM, as an alliance would have prevented it from making any other joint ventures.

"Renault and Nissan consider that the principle of compensation is contrary to the spirit of any successful alliance," the three companies said in a joint statement. Analysts have speculated that the payment sought by GM was around $5 billion.

With GM out of the picture, speculation rose that Renault-Nissan boss Carlos Ghosn could now turn his attentions to another U.S. carmaker deep in trouble, Ford Motor Co. 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 world's biggest carmaker, which like Ford is battling to resurrect its ailing operations. But rumors soon circulated that GM chief executive Rick Wagoner was not interested in the deal and was merely going through the motions of a 90-day study period which was set to end October 15.

JP Morgan Chase auto analyst Himanshu Patel said Ford "may be a more willing partner" for Renault-Nissan, despite the U.S. company remaining in family control. In a research note, Patel said Ford "seems to have longer to go in its turnaround, better product cycle overlap (especially in Europe), and similar positions in key emerging markets (e.g., China)."

There may be some competition for a Ford partnership. Wagoner hinted last week that while there were no contacts at present between GM and its Detroit rival, such an alliance might still be contemplated. An alliance with Renault-Nissan could save Ford between $2 -$3 billion a year, estimated Bank of America analyst Ronald Tadross. "Especially in the case of Ford, there seems to be more opportunity on the purchasing front than GM," he said, citing benefits for both GM and Ford from Renault-Nissans approach to capital investment, purchasing and resale values.

Copyright Agence France-Presse, 2006

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