Sonny Makes the Deal

GM-Renault-Nissan Wouldn’t Be Easy, Past Auto Pacts Show Thus reads a headline in today’s Wall Street Journal.

As you might guess, the story beneath the headline pours a healthy dose of cold water on Friday’s electrifying news that GM’s largest shareholder, Kirk Kerkorian, has proposed hooking up with business genius/company savior/Wall Street hero Carlos Ghosn—The Man Who Saved Nissan. And that Mr. Ghosn was considering the idea.

The Journal, in its usually sober, thoughtful manner notes the auto business “is rife with ambitious mergers and alliances that have gone awry,” starting with GM itself, which—let’s use the word “threw”—away billions on a bad deal with Fiat.

While noting that Ghosn, who manages two companies—Nissan and now Renault—on different sides of the world, is intrigued by the enormous cost savings potential of a three-way merger, the paper spends most of the article detailing why the Daimler-Benz merger with Chrysler didn’t work out as advertised.

According to Chrysler’s own executives, different cultures, different agendas and over-optimistic “synergy” forecasts are just a few of the reasons a GM/Nissan/Renault deal could fail, if the Chrysler blueprint is any indication.

And the Journal may be right.

Now, I know less about what goes on in Detroit than almost anybody reading today’s Wall Street Journal. And while I do happen to think that GM’s CEO, Rick Waggoner—who was barely mentioned in the article—is not the guy to get GM healthy (see “General McClellan Awaits Battle…In Detroit,” 12/5/05), I know even less about what goes on inside GM. I couldn’t tell you a thing about who sits on the board and what their agenda happens to be. And I don’t own the stock.

But I do know human behavior, and I can’t imagine what could possibly look better to the GM board of directors than to cut a deal with Carlos Ghosn.

I’m thinking of that scene in the Godfather, after “the old man” has been shot, where Tom Hagen is telling Sonny Corleone to make the deal with Sollozzo:

If we lose the old man, we lose our political contacts and half our strength. The other New York families might wind up supporting Sollozzo just to avoid a long, destructive war. This is almost 1946. Nobody wants bloodshed anymore. If your father dies, you make the deal, Sonny.

Now, as we all know, Michael Corleone offered his brother a better alternative, and took care of Sollozzo himself.

But, in the case of General Motors, there is no Michael Corleone—no better alternative in the world, that I can imagine, than bringing in the man who turned around one of the worst automobile basket cases on the planet.

I think Sonny makes the deal.

Jeff Matthews I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.