GM stock posted its biggest single day gain in months yesterday on the strength of an idea suggested by their largest stockholder, Kirk Kirkorian. The dumber a business idea is, the more Wall Street likes it, so you have to know this idea was was a particularly stupid one. The plan is to have Renault-Nissan buy 20% of GM so they will link up into one grand company with auto genius Carlos Ghosn infusing GM with his wisdom and talent.
Carlos Ghosn is the wonder boy of the automotive world these days – the CEO of Renault, which owns 44% of Nissan – and the management genius who has orchestrated the ‘Nissan turnaround’. Kirk Kirkorian is a billionaire who learned everything he knows about automotive manufacturing from his career in the casino business in Las Vegas.
"We believe that participating in a global partnership-alliance with Renault and Nissan could enable General Motors to realize substantial synergies and cost savings" according to Kirkorian’s filing of this flash of inspiration with the SEC.
"If GM management were to agree to such a partnership, we would view this as a major potential long-term positive for GM shareholders," JP Morgan analyst Himanshu Patel said. I wonder which Himanshu thinks would be more positive for for GM shareholders – the benefits of greater economies of scale or the infusion of Carlos Ghosn into GM? (note that "substantial synergies and cost savings" is Wall Street deal-maker talk for economy of scale)
No point in agonizing much over the obvious lunacy of this scheme.
For one, they may not have heard the news yet either in Las Vegas or on Wall Street, but GM already tried economy of scale. GM’s problem has not been that they were not big enough to make money. They were bigger than every other car company in the world combined – and they have bought and sold chunks of everything from other car companies to machine builders to software outfits – just about everything but the corner lemonade stand. The promised ‘synergies and cost savings’ generally didn’t happen. Why would anyone in their right mind think that making GM bigger and having guys from Renault and a casino babbling at board meetings will fix GM any more than Ross Perot and a long line of others did?
Second, excuse me for opting out of the Carlos Ghosn fan club, but his primary accomplishment at Nissan, and before that in the tire business, was closing plants and laying people off. GM has already demonstrated that, whatever their weaknesses might be, the ability to close plants and cut headcount is not one of them. They don’t need the help of Ghosn, "Le Cost Killer", for that.
Guys like Carlos Ghosn and Lee Iacoca who make a big splash as saviors in the auto industry come and go pretty often. Closing plants and cranking out a flashy new model or two in the face of impending disaster is the standard turnaround scheme. GM, and Ford for that matter, have already embarked on that plan. That is all Ghosn has done at Nissan, and it is all Iacoca did at Chrysler. A few years later, Chrysler was back on the downhill slide because Iacoca didn’t do anything about the systemic process issues that caused Chrysler’s problems in the first place. It is only now that fixing core manufacturing capability is the focus at Chrysler.
Kirkorian’s inside man at GM was the old Chrysler CFO during the Iacoca flash in the pan turnaround. Maybe he and Kirkorian don’t know that neither Iacoca nor Ghosn are long term agents of fundamental process change. Just as likely they do, and all they are looking for is a Nissan type spike in the stock price for a year or two – just long enough for Kirkorian to unload his stock and make a killing, leaving Detroit to clean up the wreckage.
Ghosn should take his cue from Iacoca and retire while Wall Street loves him – write a book and go out on the lecture circuit. The Nissan turnaround is over and the inevitable backslide has begun because Ghosn has not done anything to fix the core processes. Quality has been a disaster at the big Nissan plant in Mississippi. Nissan earnings peaked in 2003, and have been slipping ever since. Note that Nissan sales have been increasing quite nicely – just not earnings. So much for economies of scale.
Wall Street and Mr. Kirkorian might also want to take note of the fact that twenty years of NUMMI has not resulted in much knowledge transfer from Toyota to GM – in fact it has more often resulted in good GM people leaving for Toyota. If GM can’t learn from Toyota they sure are not going to learn much from Nissan.
About the last thing GM needs is another deal or another boy wonder. The best thing you can say about GM’s latest effort to fix itself is that has not had the hallmark of ‘deals’ and buying itself out of trouble, which has been the GM pattern in the past. For that matter, give Ford high marks for turning down a similar deal with Renault and Nissan a while ago.
The only fix that will work for GM is to make fundamental improvements to their value streams – the steps involved in taking cars from concept to collecting cash from a customer. It costs too much and the quality is no good. Those things have to be fixed or GM is doomed. Neither Carl Ghosn nor the casino mogul have demonstrated they know the first thing about how to do that. People who do know how to do that very well are already working in the middle ranks at GM. Rick Wagoner’s task is to stifle the braying jackasses from Wall Street and Las Vegas, and give voice to those people in the company who have sound answers to hard questions about basic engineering and manufacturing process weaknesses.