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Last Updated: Tuesday, 4 July 2006, 13:51 GMT 14:51 UK
Q&A: GM-Renault-Nissan alliance
H2 Hummer
A GM-Renault-Nissan alliance would create an industry behemoth
The global car industry could be in for a radical shake-up if General Motors joins with Nissan and Renault in a strategic alliance.

Renault and Nissan have said they are ready to start talks on a tie-up with GM, and one of the US firm's main shareholders - Kirk Kerkorian's Tracinda Corp - wants it to join the alliance.

But how would such a tie-up work, and should other carmakers be worried?

Who is involved?

Nissan - Japan's second biggest carmaker and the world's ninth - has produced some hefty profits in recent years, a major turnaround from the late 1990s when the company was in serious financial trouble.

It prides itself on being the world's most profitable mass-volume carmaker by operating margin.

Renault is the world's 10th largest carmaker, and has just embarked on a three-year plan to become Europe's most profitable mass volume producer.

It plans to produce 26 new models before 2009.

Carlos Ghosn
Mr Ghosn has the nickname of "Le cost killer"

Nissan and Renault have been working together since May 1999, when they set up a joint venture to co-ordinate their global product development, financial policy and corporate strategy.

Renault has a 44.4% stake in Japan's Nissan, which in turn has 15% of the French carmaker's shares.

Both companies are led by Carlos Ghosn, the chief executive accredited with turning round Nissan, who is also known as "Le cost killer".

US car giant General Motors is the world's largest car manufacturer, with about 320,000 staff worldwide.

The company is in the early stages of a massive cost-cutting plan after reporting a loss of $10.6bn in 2005.

It is shedding 30,000 jobs and closing 12 plants in North America.

What is being proposed?

Mr Ghosn has spoken of extending the Renault-Nissan alliance in the past, and Kirk Kerkorian, the billionaire who owns 10% of GM through his company Tracinda Corp, has proposed that it joins the pairing - but details are sketchy.

Consolidated 2005 revenues - $327bn
Consolidated 2005 profits - $1.7bn loss
Estimated 2006 sales - 15 million
Source: CSM Worldwide

It is thought that the alliance would involve Nissan and Renault each taking a 10% equity stake in GM.

There is also speculation that Mr Ghosn would take the lead in trying to restructure GM, whose current chief executive, Rick Wagoner, has been widely criticised for not doing enough to resurrect the company's fortunes.

What are the implications?

Big. According to automotive forecaster CSM Worldwide, a tripartite alliance would create an industry giant with combined revenues of $327bn, and production of 14.6 million units a year.

It would be a market leader in North America, Europe and China.

What are the pros?

Carmakers are coming under increasing pressure to consolidate and thereby cut overcapacity and reduce costs.

An alliance would increase the opportunities for the three firms to share the development and production of car engines, chassis and other parts, producing big savings over time and cutting the risks associated with developing new technologies.

Nissan 350Z
Renault-Nissan is keen to secure more partnerships

Shared purchasing power would give the firms even more leverage when squeezing suppliers for price reductions.

Renault would also be licking its lips at the prospect of the alliance giving it an instant gateway into the huge North American market.

Nissan and Renault taking a minority stake in GM would represent a vote of confidence in the US firm's turnaround plans and would help to boost its terrible credit rating

And the cons?

Although the Renault-Nissan alliance has been widely credited as a success, the industry is littered with failed tie-ups - including BMW and Rover, DaimlerChrysler and Mitsubishi and GM's links with Fiat.

GM is in the early stages of a big restructuring, while Renault has just embarked on a new three-year plan, so neither is well placed for a major bout of international co-operation and the distraction it would cause managers.

General Motors vehicle
GM is in the middle of a huge restructuring plan

Many analysts argue that carmakers as big as these have already wrung most of the savings they can from suppliers, many of whom are in as precarious a financial position as GM itself.

They also doubt that Mr Ghosn, despite his excellent track record, will be able to make much headway in dealing with GM's big problems - its staff pension and healthcare costs and falling US market share.

And although Renault and Nissan complement each other with their respective geographical strengths in Europe and Japan/North America, GM competes around the world, with many similar models to its prospective allies.

Finally, there is concern that the size of any new alliance would be such that it would be scrutinized by competition authorities across the globe.

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