A Dubious Cure for GM's Woes

Friday, July 07, 2006

A Dubious Cure for GM's Woes

General Motors is steadily losing market share at home and abroad. So along comes Kirk Kerkorian (he owns roughly 10% of GM's stock), urging the automaker to pursue a global alliance with French automaker Renault and Japan-based Nissan.

I'm no expert on the auto industry, but, from where I sit, columnist Steven Pearlstein offers some good arguments for why Kerkorian's idea is a poor prescription for GM:
... the only thing these companies have in common is that they all produce cars and they are all losing share in their home markets.

Yes, we all know General Motors has its problems. Its legacy costs have brought it to the verge of bankruptcy. Its business is based on gas-guzzling trucks and SUVs and thoroughly unmemorable sedans. It has too many nameplates and platforms and dealers. Its management remains insular and unimaginative.

But never in the history of modern business has there been any problem for which the correct solution has been to join forces with a French company -- let alone one whose controlling shareholder is the French government.

This is Renault we're talking about here, folks. This is the rare car company that could not manage to steal share from the Big Three in the giant U.S. market and eventually had to abandon the market completely. A company that has major production facilities running at less than 50 percent capacity but can't consider the possibility of layoffs without triggering a week-long national strike.

But wait a minute. General Motors doesn't need Renault to establish a presence in Europe. It has had one for decades in Germany's Opel, and more recently in Sweden's Saab. Nor does it need an alliance with Nissan to establish a beachhead in Asia.

The key market there is China, not Japan. And believe it or not, the hottest-selling car in China these days is Buick, the rare bright spot in GM's recent performance.

... history does not give much encouragement for cross-border hookups. .... only last year, General Motors itself was forced to hand over $2 billion in badly needed cash to win its divorce from Italy's Fiat.

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