Renault saved Nissan in 1999. The partnership now boasts the highest profit margins in the industry. GM took a $10.6 billion plunge last year. Can the powerhouse French / Japanese duo rescue the US’s largest auto maker?

The offer by the French / Japanese group to buy a 20% stake in GM would arm the troubled automaker with a potential $3.3 billion dollar in cash.

Although the car industry has undergone much consolidation in the past decade, most of it has been disastrous. Jaguar and Saab, were consumed by Ford and GM respectively only to cost many billions in further losses. The Daimler-Benz Chrysler merger took approximately 5 years to stabilize.

If the Renault Nissan group purchases a stake in GM, it’s estimated that the conglomerate would hold a 21.9% global market share, ahead of Toyota with a 12.3% global market share (source Automotive news). An extremely aggressive move, to say the least.

The two car manufacturers are due to meet this week in Detroit for further talks. Many Wall Street analysts, including Standard & Poors, are skeptic that the deal will go through.

The key questions remain: Can GM reclaim it’s title of “king” of the automobile industry without the help of foreign investments? Or are we in an era that requires cross-continent M & A’s to retain profitability in this highly competitive auto industry?

Comments (3)

Good article, I am a big fan of the auto stocks but only because I tend to like the products. (Thus the pen name Jym Khana). I have been enjoying some modest returns with Fiat and I am waiting for Ford to break it’s fall so I can jump in. There are also some interesting developments in the Indian and Chinese markets (I think when China starts exporting to the US we are going to see some real nice vehicles). To answer your questions- Can GM reclaim it’s title of “king” of the automobile industry without the help of foreign investments? No, I don’t think any one manufacturer will be “king” without being part of a foreign conglomerate. (With foreign being a very relative term). Are we in an era that requires cross-continent M & A’s to retain profitability in this highly competitive auto industry? Absolutely.

I don’t think any of the American auto producers can continue without foreign help. Generally speaking all of the car industry is in a bind; overproduction, too expensive, not fuel efficient enough. If you think about what is happening with oil it is dejavue again. In the 70’s people were driving gas guzzlers and when the oil crunch happened the Japanese made huge market gains.

Now we have 2006 and the only company who is ready with fueld efficient cares are the Japanese (again) with hybrid’s. The German’s are sort of ready with diesel and bio-diesel. But a cynic could say a hybrid motor could be powered by a diesel motor.

In fact, about 1.5 years ago we bought a new car and I had the choice between an semi-fueld efficient SUV or a fuel efficient car. I hedged and chose the fuel efficient car, and am laughing my head off.

My point is that there will be a shake out and we don’t know who will survive. If I had to use an indicator it would be those companies that have the leg up on the next generation of vehicles. Efficiency will be everything….

One more thing I forgot… If I was an investor I would ignore the car market. Consumers can deal with more expensive to maintain cars. The trucking industry cannot deal with more expensive to maintain trucks. Anything that makes it cheaper to run trucks will be soaked up like a dry sponge.

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