On Monday, the boards of automakers Renault and Nissan confirmed that they were interested in forming an alliance with the world's largest car company, General Motors Inc.

Last Friday, a top shareholder at GM, private investment firm Tracinda Corp., issued a statement indicating that both Renault and Nissan were open to the possibility of a deal where each company would acquire a significant minority stake in GM.

French firm Renault and Japanese carmaker Nissan - which formed a tight alliance in 1999 through mutual ownership of shares and leadership - are both being led by corporate turnaround specialist Carlos Ghosn who is acting as CEO of both companies

In separate statements Monday, both Renault and Nissan said Ghosn (his name sounds like phone) had been given the authority to speak with GM about the potential deal, provided that GM's board members approved of the idea.

Renault and Nissan have previously indicated that they would be willing to bring in another carmaker into their alliance. Their current arrangement with one another calls for each firm to maintain separate boards of directors and brand identities, while cooperating in engineering and production expertise.

GM's Problems

The proposed deal comes at a sensitive time for American automaker General Motors, which currently ranks as the top vehicle seller worldwide ahead of Toyota with 9.2 million cars sold in 2005. GM is currently in the midst of a turnaround effort following a net loss last year of over $10.6 billion on $192 billion in revenues.

GM Chief Executive Rick Wagoner, who has been running the company since 2000, personally took over the North American car division in 2005 following the latest losses.

Wagoner's efforts have raised the company stock by more than 50 percent during the last year. He has spearheaded the drive to cut executives' salaries, including his own, reduced dividend payments by half, and successfully sent over 35,000 union employees to early retirements when they agreed to contract buyouts.

He has also planned to close down a dozen factories and wants to implement less expensive ways to design cars.

His efforts to reduce costs have been validated by GM's board, which gave him a vote of confidence in April of this year. Still, as recently as Monday, GM reported that auto sales in June were down 26 percent over the comparable period last year.

Ghosn Into the Picture

The proposal for an alliance was first revealed on Friday by billionaire investor Kirk Kerkorian's Tracinda Group, which owns about 10 percent of GM.

In a letter filed with the Securities and Exchange Commission, Tracinda stated that the alliance with Renault and Nissan could enable General Motors to realize substantial synergies and cost savings and thereby greatly benefit the company and enhance shareholder value.

A second letter indicated that Kerkorian and Ghosn had discussed the proposal.

Ghosn, a Brazil-born Frenchman with Lebanese parents has been instrumental in making the best of a $5.4 billion alliance investment by Renault to buy a 44 percent interest in Nissan in 1999. At the time, the Japanese carmaker was close to bankruptcy.

At the request of then CEO of Renault Louis Schweitzer in 1999, Ghosn took his cost-cutting leadership to Japan to help turn around the struggling Nissan. The firm had posted annual losses in 7 of the previous 8 years and was stuck with a debt of $20 billion.

By implementing tough reforms, Ghosn brought the company back to profitability in three years and eliminated the debt. From the start he planned to close plants and lay off workers while ending unprofitable relationships with parts suppliers, a difficult task given Japan's culture of reverence toward long-term job stability.

Offer on the Table

After Tracinda's initial letter, GM indicated the same day that it would take the matter under advisement. However it has not yet made an official announcement.

Sitting on one of the seats of GM's board is Kerkorian's adviser Jerry York, who earlier this year during a speech before auto analysts in Detroit urged his company to implement various measures such as executive pay cuts and stock dividend reductions. In addition he asked that the company set up public goals and targets similar to what Ghosn did when he first arrived at Nissan.

Some of those measures have already been taken.

In addition, GM is looking raise some much needed cash by selling controlling interest in its finance arm, GMAC, for $14 billion.

GM could decide to meet as early as this week to consider whether it should take up the proposed alliance talks or not.

General motors