Posted on 10/05/2006 3:11:52 AM PDT by Republicain
PARIS, Oct 5, 2006 (AFP) - Shares of French automaker Renault gained ground here Thursday as investors reacted favorably to a breakdown in alliance talks with General Motors, which raised possibilities of a tie-up with Ford instead.
Renault shares in early trading were up 1.85 percent at 90.90 euros on an overall market that was stronger by 0.74 percent.
Discussions between the French-Japanese group Renault-Nissan and GM were called off on Wednesday in the face of disagreements on how the benefits of an alliance to the three groups would be distributed.
"The breakdown in these negotiations appears as a setback for Reanult, which must contend with a sharp fall in sales on its domestic market," said analyst Sebastien Caron of brokers Fideuram Wargny.
But in a note to clients, the bank Societe Generale said the rupture should not weigh too heavily on Renault shares "given the doubts" about the likely success of the talks.
"Even if the synergies were in place, the complexity of an alliance with a company as large and as insufficiently motivated (as GM) could give cause for concern," the bank said, adding that "discussions with Ford would seem to be more reasonable."
A source close to the auto industry told AFP on Wednesday that Renault-Nissan continued to believe that "enlarging the alliance to include another partner, notably in North America, can create value."
He added that Renault-Nissan was not ruling out a tie-up with Ford, even "if there is no urgency."
Now if only Ford can scoop up Studebaker, Packard and Hudson to showcase along side of Renault.
You know you're hurting when . . . .
Lots of smaller pieces worth more in total than when lumped together.
In addition, GM has been able to use its size to reduced its supplier costs as far as it can - Delphi for one, which sells to GM parts worth a little shy of a billion dollars a month, is bankrupt and now in the process of getting itself out from under unworkable supplier contracts it was saddled with when it was spun off from GM back in '99 (in addition to dealing with the UAW over worker salaries and benefits).
Consider that the late proposed marriage of GM and Nissan/Renault was based upon prospective cost reductions in supplier and engineering costs.
In summary, I reckon the only way an ex-GM brand could be made to be profitable would be if the new owners could let the business run into the ground, declare bankruptcy, and then reorganize the labor force, transferring the pension liabilities to the Pension Benefit Guaranty Corp, and use the lower overall labor costs to offset realistic supplier costs in order to produce vehicles which are competitive with their import rivals.
And since that isn't a path to profitability I see very many prospective suitors interested in following, I expect that GM as a whole will take the bankruptcy path, looking to emerge with reduced payroll and pension costs, while maintaining the advantages of being America's largest auto manufacturing business.
I note that Cerberus, the firm which is in the process of buying GMAC, has stated an interest in Delphi, and Appaloosa, which presently owns a little under 10% of Delphi, has stated an interest in gaining a larger stake, which makes me think that at least two firms are interested in benefitting from GM's operations, though not by taking ownership of any vehicle manufacturing operations.
In the interest of disclosure, I am bearish on GM. Could you tell?
Another thing I was pondering (that's all I can do, since I am not a corporate-raider) is, does an investor who accumulates a sizeable stake in a company, as Kerkorian has done with GM, at a point reach some sort of "critical mass" where it is more painful to unwind his position rather than go forward?
There must have been something very important to this deal for Kerkorian. Since the deal has fallen through, Kerkorian has stated that he's not buying any more stock and that his adviser, Jerome York, is resigning from the board.
The only way for GM to survive is for them to stop acting as a benefits company and become a car maker again. To do that they have to get out from their labor contracts and their pension liability. BK may be their only option.
If GM's future involves bankruptcy, howevermuch "unwinding" costs, it would be desirable to riding GM stock down to zero or the pink sheets.
Concur - I have no idea what Kerkorian's long term plan for GM was with York on the board. At least with Waggoner, I have an idea what his plan is, though I am pessimistic about its chances of success.
There are some rumors now about Kerkorian starting a proxy fight for GM's board of directors, and if that's the case, I suppose we've still got a chance of seeing what Kerkorian's long term plan for GM is.
Buy an index fund, VFINX, or VTSMX, and be happy. Yes, I own about 15 equity funds. Complexity entertains me. But most of the money is in about 7 funds, with VTSMX by far the largest holding.
My monopoly money account, however, is a tad more aggressive, but then I can afford to lose it all and still buy the truck load of Kleenex necessary to dry my eyes afterwards.
I like BHP (Australian Mining Firm), which is a component of EWA in my IRA, and held individually in my monopoly money account.
As soon as I near retirement, I'll switch over to funds, and just consider the frictional costs associated with their operation as part of the price tag for rubbing elbows with my fellow well-to-do's at the country club.
Or so the theory goes. = )
Dumping your money into high yield utilities and Australia, strikes me as well, not diversified. I am the Roberto Clemente of investing, or so I think. Just hit a lot of singles. Having said that, I did do a bit better with my real estate "empire." That is just a product of what a California lawyer, with surplus cash leads to, who is not a cocaine addict. :)
Well, I did say "conservative" rather than diversified, and utilities are about as far away from the bleeding edge as you can get where individual stocks are concerned and have a pseudo index way of tracking the overall economy.
I hope to be a land baron too someday, have no fear, and I'm sure I have no idea what you're intimating as far as lawyers and illicit substances, as I don't recall ever seeing anything like that on either Ally McBeal or L.A. Law.
I have yet to meet a lawyer, with whom we let out mutual pants down, as it were, who did not indulge sometime in illicit substances, unless they were Mormon. The ones with a portfolio did an age specific and cost benefit analysis thingy - all things in moderation. Just a left coast perspective for you. No doubt your left coast suburb is the exception that proves the rule. :)
It'll be a hoot, I'm sure.
= )
Just do it. :)
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