GM, Ford join forces against Japan

NEW DELHI/CHICAGO: A grand alliance between arch rivals General Motors and Ford may still be miles away from reality, but industry insiders said it would create an American automotive behemoth that’s bound to give Japanese giants sleepless nights — particularly in emerging markets like India and China.

While reports of alliance talks between the two Detroit biggies have been termed as mere discussions on issues of mutual interest, industry watchers pointed out that a combined entity may be in the works.

This entity, analysts said, is expected to keep the Indian arms of both GM and Ford separate while sharing back-office functions and component sourcing activities. India representatives of both GM and Ford refused to comment on the development.

“The impact of such a mega merger would be felt outside US only in the second phase,” said Anang Jena of Synovate MotoResearch. “The immediate fallout, if the merger goes through, will be in American market and the joint effort will be aimed at taking on Japanese rivals like Toyota and Honda which have been eating into their market shares.”

GM is in the midst of a restructuring as it tries to recover from a $10.6 billion loss in 2005. Turnaround efforts at the world’s largest automaker gained traction this year as 34,400 workers have accepted early retirement and buyout offers. GM is also closing 12 plants.

Still, CEO Rick Wagoner is under pressure to show further improvement as it studies a possible tie-up with Nissan Motor and Renault in which Nissan and Renault could buy up to a 20% stake in GM.

Ford had last week also said it would slash $5 billion in costs and one-third of its work force. It also suspended its dividend and pledged to revamp a vehicle line-up seen as weak by analysts. However, it ruled out an immediate sale of Jaguar brand, disappointing investors and sending shares to their biggest single-day percentage decline in almost four years.

Earlier this month, Ford named Alan Mulally as CEO, ending the troubled five-year stint of Bill Ford Jr as the company’s operational head.

“A merger between GM and Ford would be largest-ever in industrial history,” said Jena. Another analyst said the two firms might also look at a non-compete agreement in emerging markets like India. For instance, if GM has its Chevy Spark in the compact car market, Ford may steer clear of rolling out a small car in India in case this alliance works out.

If it works out, this would by far be the grandest of marriages in the world of automobiles — surpassing even the mega merger between Daimler-Benz and Chrysler. Though industry watchers say an outright merger may be unlikely, here’s a quick look at what could be driving the two rivals to bury the hatchet and talk marriage

An alliance could help the two troubled auto giants achieve economies of scale and reduce purchasing costs for components. The alliance would also help the two firms come out with a feasible solution for their common woes — high health costs, high union costs, and ineffective white collar work force that they both want to get rid of Ford and GM could start more joint efforts similar to their current work to develop a six-speed automatic transmission.

The alliance might also look at joint development of fuel-efficient vehicles to take on Japanese rivals, which have been fast gaining market share in US.

Ford has been bleeding badly in its homeground, and has been looking at alliances with majors like Renault-Nissan to drive back into profit zone. It has also been toying with the idea of selling off premium brands

GM is in the midst of a partly-successful revamp exercise, which gained traction this year as 34,400 workers — about a third of its workforce — have accepted early retirement and buyout offers