HOW LONG WILL FOMOCO BE ABLE TO REMAIN INDEPENDENT?

The auto world is being rocked today (30 Jun 06) by Tracinda Corporation's filing with the United States Securities and Exchange Commission of documents relating to a proposed "Partnership-alliance" between General Motors (GM), Renault S.A. (“Renault”) and Nissan Motor Co., Ltd. (“Nissan”) based on Nissan and Renault buying a significant minority interest in GM.

Apparently Ford Motor Company (tm) isn't the only one with a "BOLD MOVE" or two left . . . .

Tracinda argues in its filings that "The Renault-Nissan partnership-alliance has created tremendous engineering, manufacturing and marketing synergies, resulting in substantial benefits and cost savings to both Renault and Nissan."

"We believe that participating in a global partnership-alliance with Renault and Nissan could enable General Motors to realize substantial synergies and cost savings and thereby greatly benefit the Company and enhance shareholder value."

"As we recently discussed with Mr. Ghosn, Tracinda believes that General Motors, Renault and Nissan should explore a three-company, partnership-based alliance. Tracinda believes that such a global alliance has the potential to materially strengthen the competitive positions of all three companies in the increasingly challenging worldwide automotive industry, with the attendant benefits accruing to each company and its respective employees and shareholders."

Tracinda, the investment company of billionare Kirk Kerkorian, reportedly owns almost 10% of GM's stock and holds a seat on GM's board. Thus, the "partnership-alliance" proposal cannot be summarily discounted.

Once upon a time, the US had the "Big 3" (GM, Ford and Chrysler) and a host of "independents." During the post WWII shakeout, the independents either merged into American Motors or left the automobile business. American Motors subsequently fell under Renault's control before being snapped up by Chrysler. About a decade later, Chrysler "merged" with Daimler-Benz, leading some to suggest that the "Big 3" was now just the "Detroit 2."

Thus, much like with major oil companies, the historic trends have favor increased consolidation and internationalization.The Kerkorian proposal may mean Ford Motor Company will become the sole surviving "Detroit 1."

The new "Alliance" (not to be confused with the "Renault Alliance" built and sold by AMC years ago") would be a powerful colossus. For all its cash flow issues, number 1 GM still accounts for about 8 million units world-wide. Number 7 Nissan builds and sells about 3.5 million. Number 10 Renault builds and sells approximately 2.5 million. Thus, the alliance would have immediate control of over 14 million units in world-wide sales, and would dwarf Number 2 Toyota (8.2 million) and Number 3 Ford (approximately 6.5 million, excluding Mazda's 1.1 million).

The synergies of the proposed GM-Renault-Nissan link-up (not to mention what Carlos Ghosn could extract from them) boggles the mind. And it ought to send shockwaves through the "Glass House" in Dearborn . . . .

One wonders, considering the bargain-basement price of Ford's stock, how long Ford can remain out of the hands of a foreign suitor.