GM's Talks With Ghosn May Be for Kerkorian's Benefit

By Warren Brown
Sunday, October 1, 2006

PARIS This is a column in which sources are unnamed, motives questioned, unpublished truths told, and opinions given.

It is a column about corporate ambition, anger, greed, and intrigue -- all terribly human traits, played out at the headquarters of France's Renault SA in the Ville de Boulogne-Billancourt and in the boardroom of General Motors Corp., still the world's largest car company despite current market and financial challenges.

It is a column about villains, so-named because it is my column, which gives me ample leeway to label characters as villains as I see them. The two villains in this case are billionaire investor Kirk Kerkorian and Jerome B. York, Kerkorian's representative on the GM board. They are the men of Tracinda Corp., a private investment house in Beverly Hills, Calif., that reaped billions buying and selling Las Vegas casinos.

Kerkorian, now in his eighties, is a recluse of a man who pays others handsome sums to do his public bidding through Tracinda, which he named after his beloved daughters Tracy and Linda. York is an executive who demonstrated in his long career in American business, including stints at Chrysler Corp. and at International Business Machines Corp., that he cares little about the "American" in American business. He also has shown that he cares less about the human value of corporations if the sum of a company's parts is worth more than the price of its whole.

Joining Kerkorian and York is Carlos Ghosn, a citizen of France who is Brazilian by birth, a man of Faustian ambition who now serves as president and chief executive officer of both Renault and Japan's Nissan Motor Co. Ghosn has designs to bring GM into an alliance with his two companies in a grand scheme to subdue that rapidly growing Corporate Enemy of the East, popularly known as Toyota Motor Corp.

It has been suggested in numerous background interviews here and in quiet venues adjacent to the Paris Motor Show that it was Ghosn who initiated the alliance talks, going directly to Kerkorian and York and presenting his designs of corporate empire, whetting York and Kerkorian's financial appetites.

"Carlos has these dreams of putting Toyota in its place," said one GM executive who, like all other GM executives interviewed for this column, seven in number, spoke only on condition of anonymity. "We think that's crazy. We're talking to him only to see if there is something there that could add value for GM, its customers and stockholders."

"Would you be talking to Nissan and Renault if you weren't under pressure to do so from Kerkorian and York?" I asked the GM executive.

"Hell, no!" the GM executive said. "Look, it was Carlos who went around starting this thing, and now that it's started, we, of course, will do due diligence on behalf of our board. But we're in the middle of a very big turnaround in our global operations. We're having lots of success with that. All of this [Nissan-Renault alliance] stuff is just one big distraction."

An 'Amicable' Meeting

It was Wednesday, Sept. 27, in Ville de Boulogne-Billancourt, the village that has long been home to Renault. Propriety demanded that the people from GM pay their respects to the leaders of Nissan-Renault.

So, GM chief executive Rick Wagoner and his gang did the right thing and visited Carlos and his buddies. Publicly, Wagoner and Robert A. "Bob" Lutz, GM's voluble chairman of product development, described the meeting, which lasted for three hours and 15 minutes, as "amicable" and "productive."

Privately, sources on both sides familiar with that meeting say it was "polite" and "respectful," much in the manner of a parley between gangs, both well-armed and fully capable of causing mutual harm, discussing a division of territory.

The bottom line is that the discussion, despite public statements to the contrary, did not go well. There was no shouting or shooting, but there was profound disagreement -- especially over the matter of who would benefit from a consolidation of supplier purchasing costs in the event of a GM-Nissan-Renault alliance.

"From our perspective, GM is the side that would generate most of those savings; and it's only fair for GM and its stockholders that GM gets the most benefits from those savings," said a GM source intimately familiar with the talks.

Nissan-Renault saw things differently, that source said.

"We believe the negotiations are going well," said a Nissan-Renault source familiar with the talks. "But things have to be fair. One side can't demand everything."

Upping the Ante

Sensing that the alliance talks were heading south, the Tracinda people decided to up the ante. On Thursday, they announced plans to purchase 12 million additional GM shares, raising their stake in the company from the current 9.9 percent to 12 percent, and to petition the GM board to put more pressure on Rick and the gang to talk more amicably with Carlos and his boys.

But professional gamblers are a shifty lot. What you see them doing, what you think they are doing, often isn't what they actually are doing.

Consider: You put up larger stakes at the table. That gets the players on Wall Street excited. You know your ploy isn't going to lead to any alliance. But the suckers who followed you think it will, thus raising the value of your bet if you play your hand right. Before the talks fall apart, you switch your bet in favor of failed negotiations, and cash out much richer than you were a week or so ago.

But sources intimately familiar with the negotiations -- even those GM executives who fear that corporate pillage is what the Tracinda initiatives are all about -- are reluctant to say so privately or publicly, though they acknowledge that it's a real possibility.

In the end, a GM executive said, "We aren't going to do anything that hurts GM or that endangers our turnaround. We've done lots of work on these alliance talks. We've been diligent. We've taken them seriously."

"We're going to present a thorough report to the board," that GM executive said. "If there is something additive for GM and its stockholders, we'll consider it. If not, we won't."

Stay tuned.