Ghosn to review progress of GM talks next month
Friday, September 1, 2006, 09:44
Carlos Ghosn, CEO of Renault SA and Nissan Motor Co., said talks on a possible alliance with General Motors Corp. are going better than he expected and he'll review progress in September. „The discussions, which are open, are extremely cordial,” Ghosn, 52, said in an interview on the grounds of France's HEC business school near Paris after participating in an employers' association conference roundtable. „I would qualify them even as above expectations.” Prodded by Kirk Kerkorian, GM's fourth-largest shareholder, CEO Rick Wagoner began talks with Ghosn on July 14 at a dinner in Detroit. Ghosn said July 27, gains for his companies from an alliance must exceed the financial risk by 10 times before he would approve an agreement. He also ruled out any management position with Detroit-based GM, the world's biggest carmaker. GM, Boulogne-Billancourt, France-based Renault and Tokyo- based Nissan will continue until mid-October to „study in a very focused and organized way what potential areas we might be able to find that could create value, synergies between the three companies,” Wagoner said Aug. 29 in Bogota. „If that's a big number and of interest to each of the three of us, then we would then consider the next step to how we're going to undertake those projects and the best structure for achieving them,” Wagoner said. That's a big „if,” said Stephen Cheetham, an analyst at Sanford C. Bernstein in London who doesn't expect the companies to reach any major agreement.
Renault's earnings and sales are likely to meet Ghosn's commitments through 2009, the CEO also said. Ghosn released a plan in February to boost operating profit to 6% of sales in 2009 from 2.5% this year. In July, he added targets of a 3% operating margin next year and 4.5% in 2008 on a reduction in production costs. The carmaker, France's second-largest, plans to release 26 new and redesigned models by 2009. H1 net income at Renault fell 25% to 1.63 billion euros ($2.1 billion), with the operating margin dropping to 2.7% from 4.4%, on slumping sales of the Megane compact-car line. Nissan, Japan's second-biggest carmaker and 44% owned by Renault, reiterated an outlook in July for a seventh consecutive year of record earnings. Fiscal Q1 net income rose 4% to 110.2 billion yen ($944 million) after a weaker yen and lower taxes outweighed a slump in sales.
Nissan and Renault created their alliance in 1999, with Ghosn leaving the French company to run the Japanese carmaker and then taking the helm at Renault in April 2005. The companies have a joint procurement project and already save about $868 million annually by combining $59 billion of purchasing, according to an estimate by Credit Suisse. The two carmakers make 70% of their purchases jointly, said Renault CFO Thierry Moulonguet, who was formerly CFO at Nissan. About a third of Renault's total purchasing-cost reductions stem from the common approach with Nissan, he said. The two automakers also build cars for each other in Mexico and Brazil and share engines and vehicle underbodies. GM in July reported earning $1.2 billion on its operations, excluding one-time costs, in the Q2. The company had a $3.2 billion net loss for the quarter because of a $3.7 billion charge to buy out workers. GM shares fell 7 cents to $29.18 at 4:01 p.m. in New York Stock Exchange composite trading. The stock has risen 50% this year. Nissan's US shares gained 49 cents to $22.77 in Nasdaq Stock Market composite trading, and have climbed 11% this year. Renault shares rose 4 euro cents to € 90.9 in Paris. The stock is up 32% this year. (Bloomberg)