General Motors April deal to sell its 7.9 percent stake in Isuzu for $300 million drew a muted reaction. GM has liquidated much larger assets lately. Isuzu seemed an afterthought.
But the deal had significance beyond its dollar value. It marked the demise of a major GM global strategy and was a reminder that, as much as GM has been battered by rising gasoline prices and legacy costs, some of its wounds are self-inflicted.
The strategy that so quietly slipped into oblivion was GMs scheme for world domination. Known as the global alliance strategy, it involved taking limited stakes in a number of automakers in Europe and Asia.
The grand vision was that GM would sit atop an integrated network, reaping cost savings from economies of scale and deftly sliding products into niches around the world. The plan was audacious: GM and its partners would control up to 35 percent of global sales.
But the goal proved elusive. GMs decisions to end its partnerships with Fiat Auto, Fuji Heavy Industries (parent of Subaru) and Isuzu are testimony to the strategys failure. GM also sharply reduced its stake in longtime partner Suzuki.
The alliance strategy produced some benefits. Joint powertrain and purchasing ventures with Fiat Auto saved billions, GM executives have said. From Isuzu, GM got sorely needed diesel engines, which went straight into highly profitable pickups.
Suzuki likely will remain an ally. It holds a share in the GM Daewoo Auto and Technology venture in Korea and probably will work with GM where it makes sense.
The GM-Fuji relationship was probably the least productive. Wedded to its boxer-engine configuration, Subaru proved to be a prickly collaborator. The companies gave up on a crossover project. Finally, they came up with the Saab 9-2X, a reworked Subaru Impreza WRX compact that wags christened the Saabaru. US sales have been terrible: 80 in April, 282 for the first four months of the year.
GMs biggest blunder, though, was in the deal-making itself. When GM bought 20 percent of Fiat Auto in 2000, DaimlerChrysler also was chasing Fiat. So GM agreed to a put option – an odd provision that would have allowed Fiat group to force GM to buy the remainder of Fiat Auto.
As Fiat Auto spiraled downward, Wall Street got scared. The put option hurt GMs stock price and became an enormous management distraction. In 2005, GM paid $2 billion (E1.55 billion) to buy its way out of the deal.
That wasnt the only ugly number. Earlier GM wrote off $2.2 billion of its $2.4 billion investment in Fiat.
GM argues that the results arent as bad as they look. It says that the Fiat deal paid for itself in purchasing and powertrain savings.
Analysts remain skeptical.
Regardless, the Fiat-GM joint ventures have been dissolved along with the rest of the alliances. GM didnt get into those deals intending to back out awkwardly a few years later.
Lately, GM has rethought its global approach. Its GM Daewoo venture is doing much of the product-development work GM expected from alliance partners.
GM is trying to remake itself as an integrated global company with uniform product development and manufacturing. Though promising, that surely reflects GMs realization that it couldnt achieve such efficiencies with a loose-knit collection of partners.
Even though GM has a new plan, abandoning its central global strategy is no small matter. The alliance experiment cost GM dearly in time, management attention and money.
E-mail Dave Guilford, News Editor at Automotive News, at [email protected]