DETROIT – General Motors Corp.'s (GM) unexpectedly large operating profit is a sign that its turnaround efforts are working, easing the pressure on GM to accept an alliance with rivals Nissan Motor Co. Ltd. and Renault SA , analysts said.
"It certainly is a clear indication GM does not have to forge an alliance with anyone to solve its problems," said James McTevia, a Detroit-area corporate turnaround specialist. "GM has proven its point."
GM's largest individual shareholder, Kirk Kerkorian, has urged consideration of a Nissan-Renault tie-up in a move widely viewed as a means of prodding GM Chief Executive Rick Wagoner to speed the automaker's recovery efforts after a $10.6 billion loss in 2005.
But GM blew past Wall Street expectations Wednesday by posting a second quarter operating profit of $2.03 per share as its restructuring took hold from a year-earlier loss.
By contrast, Nissan's operating profit slumped by 26 percent in the same quarter because of weakness in its U.S. sales, a reversal of relative fortunes that some analysts said could affect ongoing negotiations between Wagoner and Carlos Ghosn, who heads both Nissan and Renault.
"I think the balance of power just shifted — who's calling who and who's going to be working for who," said David Feinman, managing director of hedge fund Havens Advisors, which owns some of GM's bonds.
"It will embolden GM to say, 'What can you do for us because we know what we can do for you?' And it gives Wagoner the out he needs, or the leverage," said Feinman.
Kerkorian, who owns 9.9 percent of GM's shares, proposed the alliance, fueling speculation that the billionaire is unhappy with Wagoner's performance and wants to bring turnaround specialist Ghosn closer to GM.
But analysts said Wagoner's credibility was on the mend with Wall Street after the nearly 60-percent rise in GM shares since the start of the year.
"He has demonstrated tremendous grace under pressure in past three months," said John Novak, analyst with Morningstar.
With the rally in GM shares this week above $30, Kerkorian's nearly $1.7-billion stake in the automaker turned solidly profitable, a factor some said could ease pressure for a GM deal.
"Kerkorian has accomplished what he wants to accomplish," McTevia said, referring to the rise in GM shares since news of the alliance proposal broke in late June.
Chief Financial Officer Fritz Henderson said Wednesday that GM management would not back away from a commitment to spend three months studying the possible benefits of an alliance.
Wagoner has agreed to a 90-day review of the potential gains from a deal with Ghosn, who has said he favors a sweeping alliance under which both Nissan and Renault would take a substantial stake in GM.
Some analysts, however, remain skeptical about the longer-term benefits of such a tie-up, saying cost savings could be hard to find.
"My take is that we may get some joint technology development, a contractual relationship, but I don't know if we will ever get to the equity cross-holding that has been envisioned," said Morningstar's Novak.
GM shares were up 5.5 percent to $32.35 on the New York Stock Exchange in Wednesday afternoon trading.