French come off the hard shoulder to ask if GM link is forward

The potential alliance between General Motors, Nissan and Renault could change the face of the global car industry, says David Litterick

The French government is rarely one to sit on the sidelines when it comes to its industrial champions. With major shareholdings in most major French companies, it is keen to weigh in when their future is at stake, and is not shy about courting controversy.

Yet yesterday it seemed to speak for many when it voiced concerns over the potential for an alliance between General Motors, Nissan and Renault which could change the face of the global car industry. It would create a one-of-a-kind enterprise responsible for one in every four cars on the planet's roads.

But the French company, in which the government holds a 15pc stake, is in the midst of its own restructuring in an effort to become Europe's most profitable volume car maker.

Critics contend that it would be folly to try to merge two companies at a time when both are contending with different sets of problems. Even Nissan, which has returned to profitability, slashed its debt mountain, and now boasts the best operating margins in the industry, has reached a plateau in its progress.

Some analysts likened the possible alliance to exhausted prizefighters leaning on each other to hold themselves up after a particularly bloody bout.

In the case of Renault and GM, the problems of a partnership could be compounded by the fact that they face very different sets of challenges.

While welcoming Renault's efforts to pursue a global strategy, French Industry Minister Francois Loos highlighted the pension deficit and contractual disputes faced by GM.

"This has to be approached with enormous caution," Mr Loos said. "The United States is an immense market, a complicated market and General Motors is in a difficult situation because of problems that have nothing to do with cars."

The three companies sold 14.3m vehicles last year and combined would be number one in North America, Europe and the burgeoning car market of China. Merged they would be far bigger than Toyota, the Japanese firm which is expected to overtake GM to become the world's largest car producer by the end of this year.

But while GM investor Kirk Kerkorian, frustrated with the slow pace of reform at GM, believes the alliance is the best way to save the ailing car maker, others side with Mr Loos.

Ronald Tadross. of Bank of America. said: "We have reason to believe that this idea is currently very conceptual, contradicts comments Renault's CEO has made regarding having more brands and does not seem necessary for Nissan."

Some are prepared to make a case for an alliance. CSM Worldwide, an industry forecasting group, said a combined group would be able to share the risk and cost associated with developing new technologies. Its increased purchasing power, while sharing platforms, engines and transmissions, could drive economies of scale, as well as synergy benefits.

In addition, the global footprint of the enterprise would be well-balanced between the major car markets, while Renault in particular would relish the chance of gaining instant access to the US market.

However, even CSM admits the list of reasons against is even longer.

The disparate corporate cultures may not be easy to integrate, while opportunities for comprehensive synergies could be limited without strong and centralised leadership. The issue of who would run such a partnership has yet to be addressed. Renault chief executive Carlos Ghosn would likely require full control, although whether GM chief executive Rick Wagoner would be prepared to yield to his rival is unclear. For their part, Renault and Nissan may not be prepared to give up Mr Ghosn's experience for extended periods.

CSM also notes that the fragile state of the companies in the carmakers' supply chains may make cost savings difficult to obtain, while GM is currently in negotiations with the unions over contracts due to become effective next year. An alliance would make such negotiations even more difficult to carry out.

If it does happen, the resulting entity will be an automotive behemoth with a combined market capitalisation of $95bn (£51bn) and sales more than three times that, although a full blown merger is unlikely to happen. Instead, Renault and Nissan are looking to inject $3bn of new equity into General Motors in return for a 10pc stake each. The existing partnership between Renault and Nissan is held up as an example of one of the few successful industry alliances.