For now, Wagoner has his hands firmly on the wheel. GM’s board on Friday issued their second endorsement of him in four months, saying it “continues to fully support” his turnaround strategy of the sputtering automaker that lost $10.6 billion last year. But it also gave the greenlight for Wagoner to conduct exploratory talks with Ghosn about forming a limited partnership with Nissan and Renault. While there is no deadline for determining if a deal can be done, a GM spokeswoman said the board had asked Wagoner to move “expeditiously.” The two car chiefs are to meet in Detroit this week to discuss the deal. “We periodically receive interesting proposals,” Wagoner said in a statement, “and we owe it to the company and its shareholders to explore how they might work.”
But the exploration actually began in May when Kerkorian’s right-hand man, GM director Jerry York, broached the idea with Ghosn while the two men were in London on business. Then on June 15, Kerkorian and York, a corporate fix-it man who helped turn around Chrysler and IBM, met secretly over dinner in Nashville with Ghosn. The charismatic chief of Nissan and Renault is revered for engineering a back-from-the-grave revival at Nissan and he has become a hot property in the auto industry. Last year, Ford Motor CEO Bill Ford Jr. unsuccessfully courted Ghosn to run his family firm. In Nashville, without Wagoner’s input, Ghosn, Kerkorian and York crafted a proposal, since endorsed by Nissan’s and Renault’s boards, that calls for the Japanese and French automakers to each take a 10 percent stake in GM. Such an alliance would create a colossal car company that controls one-quarter of the world auto market. It also would give Kerkorian a 30 percent voting block inside GM’s boardroom, which he could use to push Wagoner harder or push him out the door. “This is an extremely aggressive move that borders on hostile,” says veteran auto analyst John Casesa. “And it greatly raises the pressure on GM management.”
Wagoner, though, didn’t back down. In a teleconference meeting with his board on Friday, a source familiar with the discussion says he expressed his displeasure with how Kerkorian handled this by publicly disclosing his proposal in a surprise SEC filing June 30—the day before GM went into its two-week summer shut down. Wagoner also let it be known Friday that he knew of the proposed deal long before Kerkorian’s June 30 bolt out of the blue. And he said he immediately reached out to Ghosn to discuss the idea. That, contends a GM spokeswoman, shows that Wagoner doesn’t feel threatened by Ghosn. Wagoner also took firm control of GM’s analysis of the deal, not delegating it to an underling or an outsider. That appeared to raise the ire of Kerkorian, who shot off a statement that characterized Wagoner’s meeting with Ghosn as simply “a good first step” and called for a review of the deal by a board committee “that receives independent financial and legal advice.”
Wagoner, though, doesn’t seem interested in advice from backseat drivers, especially since his turnaround is finally gaining a bit of traction. He just convinced 35,000 workers to take buyouts, slashing GM’s U.S. payroll by one-third, and he raised his cost-cutting goal to $8 billion a year. But sales are still in freefall at GM, still heavily dependent on gas guzzling SUVs, and its share of the U.S. auto market has slipped below 24 percent, its lowest level since the roaring ’20s. York has urged Wagoner to kill off some of its eight different brands, like money-losing Saab and political pariah Hummer. But Wagoner rejects that advice as strongly as he discounts the notion that an outsider can do a better job than him, a GM lifer. “The chance of someone coming in and understanding our business, and making the right calls … is absolutely microscopic,” Wagoner told NEWSWEEK in March. “That would be the biggest risk I’ve ever heard of.”
At this point, the chance that GM will get hitched to Nissan and Renault seems remote. Wall Street has mostly turned thumbs down on the deal, failing to see the logic in linking three dramatically different companies that don’t have complementary product lines or geographic strength. GM fiercely competes with Renault in Europe and it goes bumper-to-bumper with Nissan in the United States. Unlike the Daimler-Benz’s takeover of Chrysler—which is still working the bugs out after nearly eight years—there is no marriage of mass and class among the three companies’ disparate model lines. “What does Renault, Nissan or GM get out of creating a three-language, three-culture entity?” asks veteran analyst Maryann Keller. “Nothing.” Even the bond-rating agencies, which have pushed GM’s debt deep into junk bond territory, see no upside in a deal that could infuse $3 billion in cash into GM. “We would be wary of the challenges of implementing such an alliance,” wrote Standard & Poor, which added that it was “suspect” that the automakers could pull it off.
In the end, by putting Wagoner in charge of reviewing the deal, the board might have sealed its fate. Despite Wagoner’s promise Friday that he enters these talks with “an open mind,” his minions were busy bad-mouthing the idea last week by warning it would create chaos inside GM that would stall its nascent turnaround. And they’ve even got friendly politicians in Washington railing against French ownership of an American icon. (The French government owns 15 percent of Renault). For Kerkorian, the payoff could still come even if his idea crashes. Since raising the prospect of a partnership, he sent GM’s stock up 7.5 percent to close at $29.48 last Friday. GM’s stock just has to top $30 for Kerkorian to get back in the black on the $1.52 billion he invested to amass his 9.9 percent stake in GM. If it keeps rising, he could cash out and walk away a winner, analysts say.
Whether this alliance ever goes anywhere, GM insiders view it as a game changer. Never before has anyone made a run at a company that once personified American strength and power and cruised through the 20th century as America’s largest corporation. Even today, with its glory days in the rear-view mirror and Toyota on its bumper, GM still ranks No. 3 on the Fortune 500 (though GM’s market value of $16.7 billion is one tenth of Toyota’s). “This is a moment in history,” says Frank Ursomarso, a Delaware Pontiac and GMC dealer. “Somebody has finally decided to go after the big gorilla. Even if it doesn’t go through, GM is a target now.” And so, too, is its embattled chairman, Rick Wagoner.
