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GM is now the prey, not hunter

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DETROIT — With the recent announcement that foreign competitors Renault SA and Nissan Motor Co. are considering purchasing a significant stake in General Motors Corp., the hunter has become the hunted.

GM, which not too long ago used its power and size to buy into smaller, less developed companies, now is potentially on the receiving end of such a transaction.

If the proposed partnership goes forward, it would reshape the global auto industry and may give struggling GM the aid it needs to revive.

Talk of a three-way alliance already is paying short-term dividends for the Detroit carmaker.

Bank of America auto analyst Ron Tadross on Monday upgraded GM to "neutral" from "sell." And GM shares soared nearly 9 percent on Friday, the day billionaire mogul and major GM shareholder Kirk Kerkorian said Renault and Nissan were interested in including GM in their alliance.

GM's shares fell slightly — 38 cents — to $29.41 on Monday in part because of expected subpar June sales results.

Also on Monday, Nissan and Renault said they had approved opening talks with GM over the potential alliance. Renault owns a 44.4 percent stake in Nissan, which in turn owns a 15 percent stake in the French company, and the French automaker's board voted to negotiate with the U.S. company.

A message seeking comment was left Monday for GM. On Friday, GM said in a statement the Kerkorian request would "be taken under advisement" by its board of directors.

Carlos Ghosn, the chief executive of both Renault and Nissan, has discussed the matter with Kerkorian and is willing to talk to GM, according to a separate statement by Nissan and Renault.

Talk of an alliance comes as GM is moving forward on an extensive turnaround plan designed to improve its poorly performing North American division, which is suffering from declining profits, high labor costs and growing competition from Asian automakers, such as Nissan. GM announced plans last year to close 12 plants by 2008 and recently said 35,000 hourly workers had agreed to retire early or accept a buyout offer.

Nissan was on the brink of bankruptcy when Ghosn was dispatched by Renault to lead Nissan in 1999. The Brazilian-born Ghosn engineered a cost-cutting and morale-boosting campaign that revived the automaker.

GM's wobbly financial footing coupled with Ghosn's track record as a turnaround specialist has some on Wall Street predicting that a Ghosn-led GM would be a step in the right direction.

Morgan Stanley & Co. analyst Jonathan Steinmetz said Ghosn's record of cost-cutting and product development would provide much-needed help for GM in those areas.

"He is the ultimate agent of change," Steinmetz said. "He did stuff in Tokyo that no one thought could be done."

GM's problems have caused speculation about the future of Chairman and CEO Rick Wagoner and other top executives, and the Nissan-Renault talk is doing nothing to quiet the rumors. It should be noted, however, that the GM board gave Wagoner a vote of confidence in April.

"The thought of the famously skilled manager Carlos Ghosn having a crack at fixing one of the most un-fixable automakers is indeed a tantalizing one," said Credit Suisse analyst Christopher J. Ceraso.

The auto industry has seen a number of ambitious mergers and alliances over the years go awry. Last year, GM paid $2 billion to break an alliance forged in 2000 with Fiat SPA after the Italian automaker's finances and market share began to collapse.

But some analysts see positives from a Nissan-Renault-GM hook-up.

Michigan-based auto market forecaster CSM Worldwide says the alliance would create a "global enterprise that would hold dominant positions in at least three of the world's major vehicle markets" — North America, Europe and China.

CSM estimates such an alliance would result in 14.3 million vehicle sales in 2006, including 6.3 million in North America, 4.6 million in Europe and 611,000 in China. Those numbers would make the alliance tops in all of those regions as well as the world, CSM said.

Credit Suisse's Ceraso said an alliance at the very least would have a positive impact on GM's stock.

"If the Renault/Nissan alliance does expand to include GM — even if it never delivers the kind of cost or product enhancements needed to return GM to sustainable profitability and positive cash flow — it would likely, in the near term, create a sense of optimism and buzz that would be good for the stock," he said Monday.

Contributing: Hiroko Tabuchi; Sarah Karush