What Alliance With Mr. Ghosn Could Bring GM

By NORIHIKO SHIROUZU and NEAL E. BOUDETTE
July 7, 2006;PageB1

They may be called the Nissan Versa in the U.S., the Renault Clio in Europe, the Nissan Tiida in Asia or the Renault Logan in the Middle East, but underneath their sheet metal and badging, they're pretty much the same cars.

By sharing engineering and parts purchases, the alliance of Renault SA and Nissan Motor Co. has been able to slash the expense and time of fielding new models, consistently driving down purchasing costs and increasing the companies' margins on normally slender-profit subcompacts. It has been a key part of the turnaround strategy of the man who leads both the French auto maker and Japan's No. 3 car builder, Carlos Ghosn.

And it's just one reason why billionaire investor Kirk Kerkorian, who controls 9.9% of General Motors Corp., wants GM to team up with Mr. Ghosn and become part of the Renault-Nissan alliance. Getting Mr. Ghosn and his management acumen into GM's board room could be the main prize that Mr. Kerkorian and his representative on the GM board, Jerome York, are after. But they also want GM to give serious consideration to whether joining forces with Renault-Nissan could accelerate the cost cutting at the world's biggest auto maker. GM's board, on which Mr. York serves as a director, is expected to discuss the matter today in a conference call.

In the meeting, Chairman and Chief Executive G. Richard Wagoner Jr. and his management team won't dismiss the idea of an alliance, according to people familiar with their thinking, but it's expected they will point out that GM is already working on a similar strategy to engineer cars once and sell them in high volumes around the world. For the past two years, GM Vice Chairman for Product Development Robert Lutz, with Mr. Wagoner's backing, has been overhauling GM's previously semi-autonomous North American, European, Latin American and Asian engineering and manufacturing units into a single organization. The vision: GM will engineer one basic car for a given segment, such as midsize sedans, that can be sold in different body styles as a Chevrolet in America, a Saab or an Opel in Europe and a Holden in Australia. Moreover, GM plans to retool its factories so that a car factory in, say, Mexico, could build Opels, Saabs and Chevrolets for any market around the world.

To share parts and engineering with Renault and Nissan, GM would have to rework some of the vehicle plans it has recently put into place, industry analysts said. "GM would have to restructure again," said Michael Robinet, a consultant at CSM Worldwide, a Farmington, Mich., research firm that tracks auto manufacturing. "Long-term benefits won't start for at least four years -- not until 2010 or later."

Before the board, Mr. Wagoner will also raise the question of whether big auto alliances work, people familiar with the matter said. GM itself has a list of partnerships with Fiat SpA, Subaru maker Fuji Heavy Industries Ltd., and others companies that fizzled out -- in the case of the Fiat alliance, at substantial cost to GM.

Mr. Wagoner's problem is that GM's vision of a self-contained, hyper-efficient global car builder is still largely just a vision, as far as outsiders can see. Renault-Nissan is starting to put cars borne of its now nearly seven-year-old alliance on the road.

The Renault-Nissan partnership that Mr. Ghosn has forged is one that by nearly all measures seems to deliver major benefits to both sides. Nowhere is that more true than in the subcompact segment, a small but growing part of the U.S. market and one of the largest in the global auto industry.

The companies offer at least 10 tiny "B Class" cars around the world, which few auto makers can equal. That has allowed Renault-Nissan to spread basic development costs over a world-wide sales volume of 1.7 million vehicles a year -- or almost double the volume of Ford Motor Co.'s best-selling vehicle, the F-Series pickup truck.

Using the same underpinnings as the Clio (and Nissan's Micra, which is sold in Europe), Renault has been able to come up with a subcompact called the Logan, which it sells for as low as $6,000. Renault sold about 165,000 Logans in 42 countries last year, mostly in eastern Europe and the Middle East. Using the Logan, Mr. Ghosn's plans to expand Renault's global reach into markets like Russia, Iran, Brazil and India, he said in a recent interview. (Mr. Ghosn has said 550,000 of the 800,000 additional vehicle sales Renault is trying to achieve will come from Asia and other regions around the world, with the remaining 250,000 vehicles coming in Europe.)

Mr. Ghosn took the reins at Nissan in 1999 after Renault bought a 37% stake, later increased to 44%, in the then-ailing Japanese car maker. A year into a three-year turnaround plan that began in 2000, Mr. Ghosn had Nissan back in the black, and within three years it was one of the industry's most profitable auto makers, with operating margins consistently above 9% -- more than twice the industry average.

One key was Mr. Ghosn's ability to keep slashing Nissan's purchasing costs, by sharing parts and engineering with Renault and producing multiple models from the same basic components.

Mr. Ghosn took over as chief executive of Renault in May 2005, and earlier this year unveiled a restructuring plan for the French car maker that aims to boost its profit margin from 3.2% in 2005 to 6% in 2009, even as it expands sales by 800,000 vehicles a year.

Neither Nissan nor Renault would say exactly how big a cost saving they have been able to achieve by sharing platforms and other components. The two companies together produced 6.13 million vehicles globally last year.

But the move, its executives say, contributed greatly to Mr. Ghosn's initial three-year plan to cut by 20% Nissan's purchasing costs, which represented 60% of the company's overall operational expenses. In the subsequent three-year plan that ended March 31, 2005, Nissan cut purchasing costs by another 15%. It's aiming to further reduce purchasing costs by another 12% over the three-year period that began in April 2005.

Money isn't all that Renault and Nissan claim to save because of their approach. Because Nissan used existing components it had developed with Renault, it was able to develop a new subcompact for the U.S., the Nissan Versa, in 15 months, which is less than half the time it would have taken if started from scratch.

A Nissan plant in central Mexico produces the Versa, along with a smaller version for Europe called the Micra, and the Renault Clio. Nissan also sells a version of the Versa in Japan and China. In total, Nissan offers seven different vehicles based on the underpinnings that go into the Versa, creating an economy of scale that cuts costs and improves its margins.

Yesterday Nissan announced that it plans to begin selling a seven-seater family vehicle called Livina Geniss in China later this year. The car uses the same underpinnings that the Versa and other vehicles from Nissan and Renault use, the company said.

Write to Norihiko Shirouzu at and Neal E. Boudette at