What Does Nissan Offer General Motors?
The short answer is nothing. I have been highly critical of General Motors for a long time. I had planned to post a detailed commentary of General Motor's continual decline before the Kerkorian brokered Nissan talks hit the press. I'll yet do that at some point. But, first and foremost, there appears to be a tremendous amount of Wall Street enthusiasm surrounding the possibility of a Nissan/Renault/GM alliance. It amazes me that analysts are even asked to give commentary on the benefits of such an outcome. But, then, that only happens on financial television stations because no one in the real world really cares what Wall Street thinks. Has any analysts actually ever run a company let alone a $200 billion one? Saved a company from despair? Have formal training in operational management? Turnaround experience? Leadership skills? Detailed engineering knowledge of what processes are used to build a car? Detailed business knowledge of the processes used to the automotive industry? Know how to lead a team of 200,000+ employees? How how the allocate capital in an industry with financial burdens totally tens of billions annually? Are you kidding? So, can anyone tell me why we care what Wall Street has to say?
So, why would GM, a company with sales of more than $200 billion care to give away 20% of the company for $3 billion? The cost of developing a single new automobile can be $3 billion. As a shareholder, I wouldn't reject the Nissan discussion outright till I had a better understanding of the synergies but they aren't very apparent from my perspective.
First off, GM is the more dominant player in every major global market sans Japan. They are more dominant in North & South America, Europe, Korea, China, India, Australia and Russia. GM has more resources at its disposal and more intellectual capital than nearly any other company on earth. That has never been a problem at GM although just about everything else imaginable is a problem at GM.
Now, here's the kicker all of the Wall Street types talk about. Synergies. What synergies? The synergies Kerkorian saw when he pushed Chrysler into Mercedes hands? Synergies that ultimately cost Kerkorian a significant amount of money? The same ones that crippled the merged company for half a decade? Before the recent management reshuffling in Germany, the smart money was betting fair odds there would be a break up of Chrysler and Daimler.
So, let's talk about economies of scale and synergies. Is GM going to get a better deal on halogen headlamps by growing from $200 billion to a merged $300 billion? Or at the least bundling acquisitions to achieve economies of scale? Or better negotiations with suppliers? Or maybe GM and Nissan could share platform development costs? How? After merging dissimilar development processes or development methodologies or development tools? How long would that take? Three years? In the mean time how does that benefit GM? By slowing down their turn around and causing them to lose more market share and bleed more money basically forfeiting the $3 investment Nissan would make? Couldn't GM do the same thing by sharing platforms internally on all five continents like they are already doing? By developing centers of competency in a global development methodology as they are already doing?
Do you want to know who wins here? Nissan & Renault by getting access to GM for a measley $3 billion. The only way GM wins is by naming Carlos Ghosn as Chairman and CEO of GM. Ghosn is likely one of the top five CEOs in the world today. Plus he's an engineer and a car guy. Frankly, as a general rule, science-minded people make better CEOs in engineering or science intensive organizations such as GM. Business is simply common sense. But a business person does not always have the capacity to think like an engineer. Ghosn is a perfect fit for GM and God help every other car company on earth if he somehow ends up running GM. That's a stretch right now. Ghosn has reportedly been offered a blank check by Ford and GM only to turn both down. Ghosn simply cannot run Renault, Nissan & play a pivotal role at GM while sitting on the board of four major companies. Without Ghosn focused full time on GM, this is a waste of time. Or is it? A little bit of a chess move by Kerkorian? What this might do is force GM's hand to increase the urgency and speed of their turnaround plan. Urgency is something GM hasn't had in fifty years and the one ingredient they desperately need. So, let's say GM's CEO, Wagoner, and Ghosn meet. Wagoner walks away and says there is nothing in this for GM. Kerkorian continues to push as a major shareholder. Kerkorian's plant on GM's board, Jerry York, throws up some type of argument that you could achieve A, B or C by teaming with Nissan. Maybe those are points GM is not moving fast enough on. So, now, York has leverage with other board members to push GM to speed up areas which York and Kerkorian would like to see happen faster. Link up with Nissan or speed up your own plan.
My bet is that this is as much posturing for the coming rounds of board negotiations on the existing turnaround plan as it is a serious discussion with Nissan. York and Kerkorian ratchet up the pressure on GM and gain more leverage for more urgency. Let's watch and see how this develops.
So, why would GM, a company with sales of more than $200 billion care to give away 20% of the company for $3 billion? The cost of developing a single new automobile can be $3 billion. As a shareholder, I wouldn't reject the Nissan discussion outright till I had a better understanding of the synergies but they aren't very apparent from my perspective.
First off, GM is the more dominant player in every major global market sans Japan. They are more dominant in North & South America, Europe, Korea, China, India, Australia and Russia. GM has more resources at its disposal and more intellectual capital than nearly any other company on earth. That has never been a problem at GM although just about everything else imaginable is a problem at GM.
Now, here's the kicker all of the Wall Street types talk about. Synergies. What synergies? The synergies Kerkorian saw when he pushed Chrysler into Mercedes hands? Synergies that ultimately cost Kerkorian a significant amount of money? The same ones that crippled the merged company for half a decade? Before the recent management reshuffling in Germany, the smart money was betting fair odds there would be a break up of Chrysler and Daimler.
So, let's talk about economies of scale and synergies. Is GM going to get a better deal on halogen headlamps by growing from $200 billion to a merged $300 billion? Or at the least bundling acquisitions to achieve economies of scale? Or better negotiations with suppliers? Or maybe GM and Nissan could share platform development costs? How? After merging dissimilar development processes or development methodologies or development tools? How long would that take? Three years? In the mean time how does that benefit GM? By slowing down their turn around and causing them to lose more market share and bleed more money basically forfeiting the $3 investment Nissan would make? Couldn't GM do the same thing by sharing platforms internally on all five continents like they are already doing? By developing centers of competency in a global development methodology as they are already doing?
Do you want to know who wins here? Nissan & Renault by getting access to GM for a measley $3 billion. The only way GM wins is by naming Carlos Ghosn as Chairman and CEO of GM. Ghosn is likely one of the top five CEOs in the world today. Plus he's an engineer and a car guy. Frankly, as a general rule, science-minded people make better CEOs in engineering or science intensive organizations such as GM. Business is simply common sense. But a business person does not always have the capacity to think like an engineer. Ghosn is a perfect fit for GM and God help every other car company on earth if he somehow ends up running GM. That's a stretch right now. Ghosn has reportedly been offered a blank check by Ford and GM only to turn both down. Ghosn simply cannot run Renault, Nissan & play a pivotal role at GM while sitting on the board of four major companies. Without Ghosn focused full time on GM, this is a waste of time. Or is it? A little bit of a chess move by Kerkorian? What this might do is force GM's hand to increase the urgency and speed of their turnaround plan. Urgency is something GM hasn't had in fifty years and the one ingredient they desperately need. So, let's say GM's CEO, Wagoner, and Ghosn meet. Wagoner walks away and says there is nothing in this for GM. Kerkorian continues to push as a major shareholder. Kerkorian's plant on GM's board, Jerry York, throws up some type of argument that you could achieve A, B or C by teaming with Nissan. Maybe those are points GM is not moving fast enough on. So, now, York has leverage with other board members to push GM to speed up areas which York and Kerkorian would like to see happen faster. Link up with Nissan or speed up your own plan.
My bet is that this is as much posturing for the coming rounds of board negotiations on the existing turnaround plan as it is a serious discussion with Nissan. York and Kerkorian ratchet up the pressure on GM and gain more leverage for more urgency. Let's watch and see how this develops.
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