The teams from Renault SA and Nissan Motor Co. arrived in Detroit on Aug. 28, ready for the first face-to-face alliance talks with their counterparts from General Motors Corp.
But instead of generating momentum, the meeting demonstrated just how far apart GM and the Renault-Nissan partnership are from forming the world's largest auto alliance.
The Renault-Nissan group hoped to begin a full-scale analysis of purchasing costs across all three companies. The GM side, however, wanted to limit the study to a handful of vehicles and a few dozen parts.
And with a mid-October deadline looming, the talks are still bogged down in the crucial area of parts purchasing -- exactly where Carlos Ghosn, the CEO of Renault and Nissan, believes an alliance with GM would have its biggest impact.
Ghosn has said the combined purchasing power of GM, Renault and Nissan could save the three companies up to $5 billion a year, a considerable sum in the hyper-competitive auto industry.
"In the area of purchasing, no one can argue that there wouldn't be synergies," said Erkut Uludag of the auto consulting firm Roland Berger Strategy Consultants.
However, savings of that magnitude would require the three automakers to share some common vehicle platforms and integrate much of their product development process. People close to the talks say that GM has yet to endorse that level of cooperation.
Moreover, the talks are reaching a critical juncture. The next meeting of the study teams is set for late this month during the Paris Auto Show, with all sides agreeing that the talks will wrap up by Oct. 15.
Officials at Renault-Nissan declined to comment on the details of the study process but said they already see potential.
"The discussions are under way, and we do see substantial synergies," said Renault spokeswoman Claire Martin.
Purchasing seen as key
But if substantial savings in purchasing can't be agreed upon by GM, there seems little chance the companies will continue to pursue their historic alliance.
"The big savings in a merger or an alliance are always in purchasing," said Thomas Stallkamp, who was president of Chrysler Corp. when it was acquired by Daimler-Benz AG in 1998.
In the rapidly evolving global auto industry, no development is under greater scrutiny than the proposed marriage of GM with the French-Japanese partnership of Renault and Nissan.
With billionaire GM shareholder Kirk Kerkorian pushing hard for the deal, GM Chairman Rick Wagoner agreed in July to a 90-day study of a possible alliance.
But based on interviews with people close to GM and Renault-Nissan, The Detroit News has learned that the two sides have yet to agree on major synergies in purchasing, platform-sharing and manufacturing capacity.
While the study teams are characterized as working diligently, progress has been slow and painstaking. Insiders at Renault-Nissan have privately expressed frustration at the pace and scope of the talks.
'We see some resistance'
In recent public appearances, Wagoner has repeatedly said that GM is committed to a thorough review of the possible savings an alliance would yield.
"If that's a big number and of interest to each of the three of us, then we would consider the next step to how we're going to undertake those projects," Wagoner said last month.
But sources at Renault-Nissan question the commitment of GM's senior management to the study because of the pressure Kerkorian applied to get the process rolling.
"We see some resistance" there, said a source close to Renault-Nissan.
A GM insider disputed the idea that Wagoner and his management team are dead-set against a deal. "Absolutely not," said the person. "Rick has consistently said he hasn't decided yet."
Ghosn has said repeatedly that he wants to expand the alliance only if the advantages far outweigh the risks and GM management is willing.
GM's board of directors is said to be open-minded on the prospect of a link-up with Renault-Nissan, according to people familiar with the board. The board was briefed last week on the alliance talks at a scheduled meeting.
Purchasing was among the topics covered in that update. According to people close to the matter, GM chose six vehicles to analyze for possible purchasing savings with Renault-Nissan: the Pontiac G6 midsize car and Chevrolet Colorado pickup in the North American market; the Opel Corsa and Astra cars built in Europe; the Corsa car manufactured in Brazil and the Korean-built Chevrolet Aveo subcompact.
According to people close to the talks, GM agreed to study the potential for savings in 37 separate parts "systems" in each of the six models.
The limited number of parts under study, however, is in sharp contrast to the broad-based sharing of components at Nissan and Renault. About 70 percent of the two automakers' purchasing is conducted jointly.
The biggest savings come from the common engineering processes used to develop parts for both Renault and Nissan vehicles, said a person close to Renault.
"The philosophy of purchasing is much different (than at GM)," said the person. "Our philosophy is more big-picture driven, engineering driven. They're more (into) cutting the costs" on a vehicle by vehicle basis.
GM is moving internally, however, to globalize its own engineering processes. Led by Vice Chairman Bob Lutz, GM is pushing to spread engineering costs over a range of vehicles produced regionally in North America, Europe and Asia.
Sharing vehicle platforms?
Still, the bigger question is whether GM would be interested in developing vehicle platforms with Renault-Nissan. By sharing platforms, the companies could realize substantial savings on the engineering and purchasing of a wide variety of components.
"That is where the savings really hit the bottom line," said Stallkamp, a partner in Ripplewood Holdings, a New York-based private equity firm. "You save on development costs. You save on (parts) system costs."
Developing platforms together is a longer-term commitment that would require GM to work closely with Renault-Nissan for three to four years on a specific platform.
People close to the talks say GM's study teams have expressed interest in certain areas of cooperation, such as building a GM version of the Nissan Pathfinder, a midsize sport utility vehicle.
GM also has shown interest in Renault's low-cost, Logan passenger car built in Romania for fast-growing emerging markets.
But tapping into an existing project is not the same as sharing in development costs -- and risks -- with partners in an alliance.
"When you develop a platform together, you won't see the fruits of it for several years," said Stallkamp, who ran Chrysler purchasing before becoming president. "But it does make a great deal of sense if you look at it down the road."
The tenor of the talks between GM and Renault-Nissan, however, is colored by more immediate priorities.
After losing $10.6 billion last year, GM is in the midst of a dramatic downsizing of its North American operations. GM is also deep in negotiations with bankrupt Delphi Corp. and the United Auto Workers to restructure Delphi, GM's largest parts supplier.
People close to the alliance talks say GM already believes it is on the verge of major purchasing savings once Delphi is restructured. By cutting its costs on parts previously bought from Delphi, GM has less incentive to pursue a common purchasing arrangement with Renault-Nissan.
Besides purchasing and vehicle platforms, two of the eight areas being studied, Renault, Nissan and GM are assessing fuel-cell and hybrid vehicles, developing markets such as China, India and Russia, and engines and powertrains -- an area where GM already has several successful joint ventures.
GM and Renault-Nissan are also examining whether underutilized GM plants in North America could be used to build Nissan models. Ghosn has said Nissan may need more production capacity in North America, and could subcontract some vehicle production to underutilized GM factories, lowering costs for both automakers.
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