The proposed three-way, three-continental strategic alliance among GM, Renault, and Nissan offers too few synergies to make it work for them. In early July, a proposal from Kirk Kerkorian, one of the largest share-holders of General Motors (GM), took the entire global auto industry by surprise. Kerkorian, who holds 10% shares of the company, had proposed a three-way alliance among American giant GM, France-based Renault, and Japans Nissan. Two weeks later, in mid-July, the three companies have issued a joint statement that they are willing to review the proposal. According
to reports, the companies will conduct a 90-day review of
the potential benefits and possible synergies that can be
derived from the alliance.
GM,
the world's largest car maker by volume, has been in deep
financial crisis for more than a decade, owing to burgeoning
labor costs and dwindling market share. Although its embattled
Chairman, Rick Wagoner, has taken severe cost-cutting measures,
it could be of little help to save the companylast year it
posted a net loss of $10 bn and its sales dropped by 12%.
On the other hand, Renault is Europe's most profitable mass
market car maker and its market capital is almost double that
of GM while Nissan is now Japan's second largest and the world's
most profitable car manufacturer by margins. The two companies
are eyeing a 20% stake in GM. Given their financial positions,
it may not be difficult for them to afford it (it will cost
them around $3 bn), but s opine that the companies
should cautiously weigh the pros and cons; else it could prove
disastrous, as with other alliances in the past.
In
the past decade, there have been many attempts in the global
auto industry to consolidate, but most of them met with failures.
Two unprofitable firms, Jaguar and Saab, were acquired by
Ford and GM respectively only to result in further losses.
Another merger, between Daimler-Benz and Chrysler, that was
portrayed as a merger between equals, took six years to bring
both of them on equal kneel. GM itself has faced similar situations
during the mid-1990s when it bought small stakes in Asian
and European firms with an intention to build a GM federation
for greater market share.
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