Thursday, November 09, 2006

Pressure is on Wagoner to succeed in turnaround

Friday, October 06, 2006
Pressure is on Wagoner to succeed in turnaround
End of alliance talks puts GM in control of its future
The Detroit News

General Motors Corp. took control of its future this week and in doing so put the demand for success squarely on the shoulders of its executive team.

Chief Executive Rick Wagoner on Wednesday called off alliance talks with Renault-Nissan, ending two-and-a-half months of negotiations. That came a day after GM's board tightened its own rules to thwart hostile actions by any large shareholders, but particularly to keep Tracinda Corp.'s Kirk Kerkorian in check.

The moves show that Wagoner and company think they're best suited to turn the company's ailing North American operations around. GM, which lost $10.6 billion in North America in 2005, still has a long road ahead of it before Wagoner can breathe easy.

General Motors reportedly walked away from the alliance because it wasn't rich enough for the Detroit-based automaker. GM said it could have saved $3 billion a year; Renault-Nissan said the number was more like $10 billion. Regardless, neither Wagoner, nor Renault-Nissan Chief Executive Carlos Ghosn, was willing to meet in the middle.

Kerkorian wanted to bring Ghosn onboard to take advantage of his cost-cutting expertise and wield more influence on Wagoner.

GM brought more to the table than Renault-Nissan and Wagoner rightly stood his ground. For a guy who earlier this year reportedly lobbied the board of directors to keep his job, Wagoner has enjoyed a turnaround of his own recently. That culminated Wednesday with the agreement by the board to stop the alliance talks.

GM will now push its turnaround plan without the alliance talk distractions. But it won't be distraction-free.

Kerkorian is trying to increase his stake in GM stock to 12 percent, up from 9.9 percent, and says he still wants an independent review of the alliance proposal. He's not known to walk away from car deals quietly.

That should keep General Motors from falling back into neutral. There's too much at stake for Wagoner, GM and stakeholders in Michigan and across the country for the company to stall in its recovery.

Wagoner must see to it that General Motors regains its standing as the world's most dominant automaker and he's been given the perfect opportunity to make it happen.

How the deal faltered

General Motors and Renault-Nissan disagreed on how much money the automakers would save by sharing costs for parts purchases and vehicle development. GM thought it would save $3 billion a year, while Renault-Nissan put the figure at closer to $10 billion.

Renault-Nissan refused to pay a premium price for buying a significant minority stake in GM when GM argued that it would save only $1 for every $3 saved by Renault and Nissan in an alliance.
What's next

Renault-Nissan says it still thinks an alliance would have many benefits and will seek another automaker partner in North America, probably Ford Motor Co.

GM investor Kirk Kerkorian, who was promoting the alliance, is increasing his stake in the company from 9.9 percent to 12 percent. Analysts say the 89-year-old may sue because GM didn't have outsiders analyze the proposed alliance.

GM will pursue its turnaround plan and keep the door open to other alliances.
Source: The Detroit News

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