Can a Charismatic CEO Save GM?

July 7, 2006 — -- Detroit is considering a potential mega deal, creating an international car-making colossus by combining the forces of General Motors, Renault and Nissan. Think of it: a combined 15 million new cars annually.

But while the GM board decided Friday to explore the possibility of an alliance with the French Renault and the Japanese Nissan, skepticism abounds.

"It's hard to see how this deal has anything to do with doing a better job on any of those fundamentals" such as building better automobiles, said James P. Womack, an industry analyst at the Lean Enterprise Institute. "It's a big spin opportunity to make something happen in what otherwise appears to be a fairly desparate situation for GM."

Trying to make it happen is Kirk Kerkorian, the billionaire owner of 9.9 percent of GM stock. He's watched his precious investment lose tens of millions of dollars and is not happy -- or quiet -- about it.

"Frankly," said Dale Jewett of Automotive News, "I think the vast majority of this is Kirk Kerkorian."

Kerkorian is 89 years old, but because he is a billion-dollar investor in GM, when he speaks people must listen. And what he has been saying lately is that current GM Chairman Rick Wagoner is moving too slowly to turn the automaking behemoth around. Better to install someone with a proven track record for cost-cutting, with a more upfront personality, a can-do attitude -- like 52-year-old Carlos Ghosn, the chairman of both Renault and Nissan.

"The bench in the car industry is basically empty with regard to people who've shown they can turn around a car company," said Womack. "Ghosn's the one guy. He's the man."

Indeed Ghosn, a Brazilian of Lebanese descent, is considered a savior in Japan where he slashed Nissan's debt in half and returned the company to profitability in just two years time. Hot-selling models including the Murano, are Ghosn's work. In France, Ghosn's surgery on Renault won him the sobriquet "Le Cost Killer."

Daniel Howes, automotive writer for the Detroit News, said Ghosn has been a "very effective CEO." But, he added, "this is a whole 'nother game."

Labor Woes, Bureaucracy

Indeed, General Motors is in terrible shape, reeling from a $10.6 billion loss last year and a 27 percent drop in sales last month. It has just negotiated some cuts with the United Auto Workers union that would have been unthinkable a few years ago but are now considered a reflection of just how dire are its straits.

Some 35,000 workers are exiting GM via buyouts or early retirement and a dozen plants nationwide will close. GM had little choice. It was saddled with pay scales and benefits that made it uncompetitive against Japanese automakers.

"GM has two essential problems," said Peter Morici of the University of Maryland. "First, GM pays about $40 an hour more for labor than the North American arms of Toyota and Honda and that margin well exceeds GM's unfunded obligations to retired workers.

"And second, GM has a legendary bureaucracy that drives up product design, marketing and administrative costs," Morici said.

So why would anyone propose joining GM?

There are bright sides to this dark picture. GM is doing a bang-up business in China, in the developing world and especially in Latin America. And its truck division, which includes large SUVs, is the envy of every other carmaker.

The bigger question is what would Nissan and Renault bring to GM?

It could mean that GM would get a foothold in the Japanese market, but, as Howes of the Detroit News says, Japanese consumers are awfully brand-conscious and might not take to buying something "Made in America." As for Renault, 15 percent of it is owned by the French government. GM may not need that kind of partner.

There is also the untidy fact that while Ghosn set the world on fire at Renault and Nissan initially, the performance at both companies lately has been disappointing and market shares have dwindled.

"Pooling design efforts with Renault and Nissan will only add to GM's costly bureaucracy," says Morici, "and result in more futile rebadging. If Nissan can't sell as many Altimas as Toyota does Camrys because the Altima does not perform as well, it won't accomplish much marketing the Altima under the Chevy and Pontiac nameplates too."

And there is the chemistry question. Would the buttoned down Wagoner, in the event of the alliance being approved, ever work well with the flamboyant Ghosn -- a man who one day may take his job away? Besides, what could Ghosn do that Wagoner isn't doing?

Now that GM's board has agreed to "explore" the idea of an alliance, the next chapter in this corporate drama will come in one week.

That's when Ghosn plans to be in Michigan to visit one of Nissan's North American plants -- and quite possibly have coffee or more in Detroit with Wagoner.