The Big Three: Desperation, Wishful Thinking and Big Myths

It is a measure of the desperate straits of the U.S. auto industry, the gullibility of Wall Street and the misplaced faith in corporate saviors that anyone is seriously considering linking up General Motors with Nissan and Renault.

As far as I can tell, the only thing these companies have in common is that they all produce cars and they are all losing share in their home markets.

Yes, we all know General Motors has its problems. Its legacy costs have brought it to the verge of bankruptcy. Its business is based on gas-guzzling trucks and SUVs and thoroughly unmemorable sedans. It has too many nameplates and platforms and dealers. Its management remains insular and unimaginative.

But never in the history of modern business has there been any problem for which the correct solution has been to join forces with a French company -- let alone one whose controlling shareholder is the French government.

This is Renault we're talking about here, folks. This is the rare car company that could not manage to steal share from the Big Three in the giant U.S. market and eventually had to abandon the market completely. A company that has major production facilities running at less than 50 percent capacity but can't consider the possibility of layoffs without triggering a week-long national strike.

But wait a minute. General Motors doesn't need Renault to establish a presence in Europe. It has had one for decades in Germany's Opel, and more recently in Sweden's Saab. Nor does it need an alliance with Nissan to establish a beachhead in Asia. The key market there is China, not Japan. And believe it or not, the hottest-selling car in China these days is Buick, the rare bright spot in GM's recent performance.

Certainly history does not give much encouragement for cross-border hookups. BMW certainly regrets its fling with Rover, while Ford still hasn't figured out how to make money with Jaguar. And only last year, General Motors itself was forced to hand over $2 billion in badly needed cash to win its divorce from Italy's Fiat.

One plausible reason for this ersatz consolidation is that it would generate significant economies of scale. But on closer examination, that doesn't hold up, either.

In terms of automobile production, the optimal plant size has actually been declining. Rather than producing massive numbers of the same cars from a single plant and shipping them to markets around the world, the preferred arrangement today is for smaller, flexible plants that are close to customers and that can produce a variety of vehicles, as market conditions demand.

Some have suggested that the alliance could achieve efficiencies by having all three companies use the same components. But as Dieter Zetsche, chief executive of DaimlerChrysler, points out, the GM-Renault-Nissan combine would be so huge that there aren't suppliers big enough to offer parts in that quantity. And even if there were, once you reach a million vehicles, Zetsche explained, the incremental benefits to component sharing "quickly go to zero."

The other rationalization for this loopy idea is that it would clear the way for Carlos Ghosn to take control of General Motors and turn it around, just as he did Nissan.

No doubt that possibility was on the agenda when Ghosn, the chief executive of both Nissan and Renault, met recently with Kirk Kerkorian, the nettlesome GM investor who put the three-way alliance in play last week. And Ghosn did nothing to discourage such speculation when he quickly arranged for the boards of Nissan and Renault to signal their interest in Kerkorian's idea.

I'm sure Ghosn is a fine fellow and a skilled automotive manager. But nobody is so good that he can manage simultaneous turnarounds at Renault and General Motors while keeping Nissan on an even keel. Each of these is more than a full-time job. And even if some other manager were only 80 percent of the manager Ghosn is, his devoting 100 percent of his time and energy to running General Motors would be better than 30 or 40 percent of Ghosn's time.

Perhaps more to the point, the business world needs to get past the idea that the only way to turn around a struggling company is to use gargantuan pay packages to lure away some celebrity chief executive who has done it somewhere else.

As Harvard Business School professor Rakesh Khurana has shown, the faith put in "corporate saviors" is, more often than not, misplaced. Remember how Carly Fiorina was going to revive Hewlett-Packard? And how George Fisher was going to put the flash back in Kodak? And let's not forget how Jose Ignacio Lopez was going to do for Volkswagen what he had done for the European operations of General Motors, before he became the focus of a monumental five-year legal battle.

So what's the real story behind Kirk Kerkorian's three-car monte? That's simple:

A financial sharpie pays $1.69 billion for a nearly 10 percent stake in General Motors that, after a year, remains under water. Desperate to get out before he loses any more, he proposes a cross-border alliance in which Renault and Nissan would each buy 10 percent stakes in GM. Renault and Nissan say they are interested, and GM shares jump more than 10 percent, forcing the hand of GM directors, who agree to consider the idea over the objections of management.

It's not clear what happens next. But if the deal finally goes through, you can probably guess whose General Motors shares will be traded to the new partners.

Steven Pearlstein can be reached atpearlsteins@washpost.com.