When Renault, the partially state—owned French auto maker, purchased a controlling interest in Nissan, it was a daring move, but one whose risk was mitigated by the backing of the French treasury. Carlos Ghosn, the Brazilian Renault executive sent to turn around Nissan, performed brilliantly, making hard decisions that Nissan on its own could not accomplish due to decades of internal rivalry. Nissan was the product of a merger in 1967 (!) between Nissan and the smaller Prince Motors Corporation. Ever since, two competing models in most segments were produced by ex—Nissan and ex—Prince factories. Hamstrung by the need to keep everyone happy, no tough decisions got made.

Ghosn played the Bad Cop and took responsibility for closing factories, discarding duplicative products and slashing overhead to the point where Nissan become highly profitable.

Now, word comes that General Motors, another deeply troubled corporation, more focused on internal issues than on the market, is in discussions with the Renault group. I find myself deeply conflicted.

On the one hand, I hate to see state—guided enterprises growing by acquisition of foreign competitors. Renault was, and remains, much smaller and less technologically advanced than Nissan. But it has leaped up the hierarchy of world auto producers. If GM were to somehow join the group and fall under the domination of Renault, the French auto maker would become a major force, probably going head—to—head with Toyota for dominance of world auto markets.

But on the other hand, I admire the skill of Ghosn, who now commutes between Paris (where he runs Renault) and Tokyo (where he still runs Nissan), presumably with frequent detours to Los Angeles, where Nissan has its North American headquarters, where Ghosn recently made his home. The company purchased an executive jet version of the Boeing 737 for his use, but the circadian disruption alone must be a killer. If he were to take on responsibility for turning around GM, I cannot imagine the stress he will have to endure.

We'll see how the discussions progress. Nothing is written in stone. But should the French treasury take on potential liabilities in the auto industry and fail at the same time it faces unknown liabilities for foundering Airbus, French taxpayers had better prepares themselves for possible tax increases.

Thomas Lifson   7 3 06