General Motors will shift the next generation of its mainstream European cars onto two radically new Fiat platforms, a move that promises to generate huge cost savings in addition to those already projected from the alliance the two automakers announced last week.
Fiat's new modular platforms are based on so-called spaceframe technology, which slashes tooling costs by as much as one-third from conventional production methods by eliminating the need for many stampings and jigs. The new platforms also allow designers to work with a wider range of wheelbase and drive options.
According to senior Fiat executives, GM's next Opel/Vauxhall Corsa supermini and Agila small minivan will share Fiat's new A-B platform with the next Fiat Seicento, Punto and Palio. At full production, the small-car platform would represent a combined volume of more than 2.5 million vehicles a year.
The Corsa and the Suzuki-based Agila are new this year, indicating that they would not be due for replacement until 2005 or so.
In addition, Fiat's C-D platform, the basis for the mid-sized Fiat Bravo/Brava and Marea and related Alfa Romeo and Lancia models, will provide the underpinnings for the Opel Astra and Vectra/Omega replacements as well. That will create a platform group with sales of about 2.2 million vehicles a year.
The Astra was redesigned for 1999 while the mid-sized Vectra and full-sized Omega are due to be replaced in 2002 and 2003, respectively.
GM and Fiat are reviewing their product plans to see when they can be merged, a senior source said. But, this Fiat executive said, the first vehicle off a common platform is likely to appear in 2005.
By then, according to Fiat's estimates, reduced development costs from platform sharing will have generated an estimated $450 million in savings.
And the savings from economies of scale will rise dramatically as production increases after 2005, and as more models are added to the mix.
The savings would be in addition to the estimated $2 billion a year the two automakers say they expect to save beginning in 2005 by merging their global parts-buying operations and some backshop operations.
GM declined to make President Rick Wagoner or vice president and purchasing chief Harold Kutner available to comment on the Fiat disclosures.
Under the deal announced by the companies on Monday, March 13, GM will take a 20 percent stake in Fiat Auto valued at about $2.4 billion in exchange for an equally valued 5.1 percent stake in GM by Fiat. Fiat's stake in GM will expand to about 5.9 percent later this year because of GM share buybacks, making the Italian automaker GM's first or second biggest shareholder.
The deal, which values Fiat Auto at about $12.4 billion, also gives Fiat the right to force GM to buy the remaining 80 percent 'at fair market value' during a 51/2-year period that begins in 2004.
Officials of both companies tried gamely to refute the impression that the provision is a signal of Fiat's actual intent. Many analysts believe the deal was structured to give Fiat's controlling family, the Agnellis, a face-saving exit strategy from the auto business. (See related column, above).
'The put option is a parachute (for Fiat),' Wagoner said at the Turin press conference where the alliance was announced.
'Obviously, GM understands and accepts those terms. But we are going in under the theory that Fiat Auto is going to stay 80 percent owned by Fiat S.p.A. I don't think anyone knows what the future holds, but we know what the intentions are today.'
Fiat S.p.A. Chairman Paolo Fresco called the put provision a 'financial mechanism' to protect the interests of Fiat shareholders.
'If we had intentions to sell the entire company, we could have done that directly,' he said in a sideways reference to Fiat's long flirtation with Ford Motor Co. and DaimlerChrysler, both of which sought complete takeovers. 'But we think the global auto business is moving toward a world of networks, not empires.'
The partners say they will collaborate under the hood by sharing technology and pooling purchasing power but will continue to compete vigorously in the retail marketplace everywhere but in North America, where GM will begin distributing Alfa Romeo sometime after 2004. (See related story on Page 47.)
At the heart of the alliance will be a 50-50 joint venture to manage the GM and Fiat engine and transmission operations in Europe and Latin America. The company will have annual revenue of $4 billion, will produce 5 million engines and transmissions a year and will employ about 40,000 people, executives said.
In a presentation to financial analysts in London, Fiat executives disclosed that plans already are under way to replace several GM diesel engines and transmissions with Fiat units. The details:
Adam Opel AG, GM's German subsidiary, will replace its Isuzu-engineered 1.7- and 1.9-liter engines used in the Corsa and Astra, as well as Opel's own 2.0-liter direct-injection unit used in the Vectra, with Fiat's new 1.25-liter and 1.9-liter common-rail direct-injection MultiJet engines.
Fiat will replace its 2.4-liter, five-cylinder diesel with Opel's 2.2-liter direct-injection unit.
Both makers will use Isuzu's new family of direct-injection V-6s.
On the transmission side, GM will replace five gearboxes - the F13, F15, F17, F25 and F35 - with Fiat's 514 and 530 units in five- and six-speed form, and a new six-speed to be developed by the joint venture. The GM transmissions being replaced account for annual production of some 1.25 million units.
Savings from the changes should start flowing quickly to the bottom lines of both companies, analysts say.
'Powertrain technology is something that is very difficult, very expensive, and where you can get some real bang fairly quickly in terms of programs,' said David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan Transportation Research Institute.
'That's why you're seeing (deals), people trading off, doing these kinds of things, because the stuff is so expensive.'
How the venture will be managed still has to be decided, executives said, although it will report to a steering committee consisting of Wagoner and Fiat Group CEO Paolo Cantarella.
Many analysts said they considered the alliance to be a wise move for both companies, if not for shareholders.
'The alliance keeps Fiat out of the clutches of DaimlerChrysler and enables GM to strengthen its position in Europe by reducing development costs for engines and powertrains,' said David Healy, auto analyst for Burnham Securities Inc. in New York.
'From GM's point of view, it attacks a primary problem that it has in Europe, and that's weak profit margins. It would be very difficult for GM to improve its profit margins on its own without major cost cutting that the Fiat deal will enable GM to do.'
John Casesa, who follows the industry for Merrill Lynch Securities in New York, suggested GM may have paid too much for its stake, even though he expects the venture to pay off.
'I think it is expensive. It looks expensive, but it does help GM strategically in a big way,' he said. 'It really strengthens the company in Europe and gives it a dominant position in South America.'
By taking Fiat off the market, the tieup puts added pressure on DCX and Ford especially to find partners, analysts agreed.
'This was a brilliant strategic move, whether that was their intent or not,' said Jim Hall, vice president of industry analysis for AutoPacific Inc. and a former GM executive.
'They have made it very difficult for anybody to tie up with anybody in Europe but PSA,' the French parent of Peugeot and Citroen.
Reported by Luca Ciferri in Turin, Italy; Rick Kranz in Detroit; and Diana T. Kurylko in Brussels. Written by International Editor James R. Crate.