Chrysler weighs Renault-Nissan tie-up
John D. Stoll | October 21, 2008

CHRYSLER may join an existing manufacturing and development alliance between Japan's Nissan and France's Renault, according to people familiar with the matter.

But a sale of the Auburn Hills, Mich., company to General Motors Corp. is still its preferred path, according to these people.

Cerberus Capital Management LP, Chrysler's majority owner, is discussing having Nissan, and possibly Renault, acquire a minority stake in Chrysler, these people said.

It isn't clear whether Chrysler or Cerberus also would be asked to purchase an interest in the Japanese and French auto makers in order to maintain a cross-shareholding relationship, they said.

Nissan has taken the lead in talks with Cerberus and Chrysler executives, although any partnership would include Renault as well, one person familiar with the matter said.

For now, Cerberus prefers a deal in which GM takes control of Chrysler. That would reduce the investment group's exposure to the volatile global auto industry.

But, GM has been unable to secure financing for a deal amid continued credit-market worries and the immediate costs of such a merger. As a result, Cerberus is continuing to pursue the option of having Chrysler team up with Nissan.

Chrysler would have a better chance of keeping much of its operations intact in an alliance with Nissan and Renault than in a merger with GM, because of overlapping brands and North American manufacturing plants with the Detroit auto maker.

Some analysts believe more than half of Chrysler's 66,000 employees would lose their jobs it the company is acquired by GM.

Nissan executives believe Chrysler could reap considerable cost savings by cooperating with Nissan and Renault in purchasing, new-vehicle development and production, people familiar with the matter said.

But joining the Franco-Japanese alliance could also tie Cerberus's fate to the performance of three auto makers on three continents, and hand most control of decision-making to officials at other auto makers who may have different goals than Cerberus, these people said.

Nissan isn't interested in taking over Chrysler. Carlos Ghosn, who serves as chief executive officer of Nissan and Renault, has long expressed interest in adding a North American partner to the alliance. In an interview earlier this month, he reiterated that "it would be logical" to add a third partner but said his companies are not interested in mergers or acquisitions. "We are not looking to save anyone," he said.

Renault and Nissan have shown that companies can work together to reduce costs "without threatening the independence of either company," he said. "We know what works and what doesn't (in an alliance), where the synergies are."

An arrangement could thrust Mr Ghosn, who has cultivated an image as a hard-charging cost cutter since becoming Nissan's CEO in 2001, back into the center of the global auto industry's spotlight.

In 2006, Mr Ghosn and GM Chief Executive Rick Wagoner discussed a potential alliance that was estimated to be capable of resulting in billions in cost savings. Mr Wagoner, who was pressured into the talks by GM shareholder and billionaire investor Kirk Kerkorian, ended up dismissing the alliance as unnecessary and a bad deal for shareholders.

Since the talks between GM and Renault-Nissan broke down, the U.S. auto industry has taken a major tumble, crimping profits for Nissan and sending GM deeper into restructuring mode.

The Nissan-Renault alliance is a rare automotive partnership that has proven successful. Together they rank as the fifth largest auto maker in the world, with a global market share of about 9 per cent.

Earlier this year, Renault invested in Russian auto maker Avtovaz in order to grab more of the fast-growing eastern European market. The two companies also have strong balance sheets. In North America, a Nissan-Renault-Chrysler alliance would have relatively little overlap, with Chrysler strong in trucks and minivans, and Nissan in small cars.