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Will Toyota make a play for GM?

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/ Source: Business Week

Could Renault and Nissan have a competitor in their effort to form an alliance with General Motors? Top executives at Toyota Motor are mulling their own overture to GM to head off rival Nissan from forging an alliance that could help the Japanese-French car company, according to people with knowledge of the Japanese auto maker's plans.

General Motors' Chairman and CEO G. Richard Wagoner Jr. met with Carlos Ghosn, chief executive of Nissan and Renault, in Detroit on Friday to discuss how the three auto companies might pursue an alliance.

Both companies issued a joint statement saying they will take about 90 days to explore potential benefits of an alliance.

If Wagoner decides to move ahead, GM and Renault-Nissan could join together in an alliance that would give Ghosn's company a 20% stake in GM. The allied companies could then share engines, platforms, and other parts. If Wagoner doesn't want to sell Renault an equity stake, the three auto giants could just form some joint ventures and still combine their engineering capabilities.

Backlash fears 
Sources close to Toyota say the company is considering its options and looking at different opportunities that they could propose to GM. ""Toyota has no interest in seeing an alliance like this [linking Renault, Nissan and GM] take place," said an executive who asked not to be identified.

One Toyota source says the company has "war-gamed" a way to assist GM. Despite Toyota's juggernaut-like growth, which has resulted in the company increasing its U.S. market share from 9.3% in 2000 to 14.6% today and earning in excess of $10 billion a year the past three years, the company fears the kind of social and political backlash that could come if General Motors falls apart.

Whether Toyota actually makes a bid remains to be seen. Several GM executives have said the company has heard nothing from the Japanese auto maker. And Toyota spokesman Steven Curtis said any talk of an offer from the company is "pure speculation."

Washington testimony
One source familiar with Toyota's strategy said that an equity tie-up like the one GM investor Kirk Kerkorian has proposed between GM and Renault-Nissan would be unlikely. "It's not in their culture," he said.

General Motors and Toyota have long worked together, albeit in a limited way. The two jointly operate an assembly plant in Freemont, Calif., where the Toyota Corolla, Matrix, and Tacoma pickup are assembled under the same roof as the Pontiac Vibe.

Wagoner was in Washington D.C. on July 13 testifying before Congress about health-care policy. In a gathering of reporters, he hinted that a deal with another auto maker besides Renault-Nissan was possible, according to Automotive News. "Could other things arise?" he said to Automotive News. "Sure, they could happen any time, but nothing else I can talk to you about today." Wagoner also said that a possible, even desirable, outcome could be no deal at all.

Toyota's interest in GM could make for a desirable solution for the GM chairman. GM executives see the Renault-Nissan alliance as a play by Kerkorian—GM's fourth-largest shareholder, with 10% of the stock—to get Carlos Ghosn into the driver's seat at GM.

Dubious synergies
That's one reason executives have been skeptical about a tie-up with Renault-Nissan. Other executives have said that they aren't sure the synergies would really be worth selling 20% of the company. Nor would they solve some of GM's long-term issues, such as rising health-care costs, falling market share, and the company's battle to buoy sport-utility vehicle profits while gasoline prices rise.

Still, even if GM and Renault-Nissan strike some kind of alliance, Ghosn may not be seeking to replace Wagoner. In an interview on Capitol Hill on July 13 Ghosn told Bloomberg "I don't need it," in reference to the top job at GM.

Given the companies' history, it is possible that Toyota could make GM an offer of expanding joint ventures, and even sharing technology and vehicle development, without buying an equity stake. While other auto makers have merged or struck alliances that involve equity swaps, Toyota has steered clear of such deals. GM, meanwhile, has recently been unwinding several mostly unsuccessful joint ventures it struck with Fiat (FIA ), Suzuki, Isuzu, and Fuji Heavy Industries.

Discussions of an alliance with Nissan-Renault were sparked by Kerkorian's Tracinda and its GM board representative Jerome B. York. Tracinda has been trying to pressure Wagoner to move faster in restructuring the auto maker. The billionaire's company publicly announced on June 30 that the Japanese-French auto maker was interested in pursuing alliance talks.

Wagoner then formed an internal committee to study the merits of the proposal.

If Toyota is serious, Wagoner will have another one to study pretty soon.