General Motors is developing a detailed plan to integrate Fiat Auto, the Italian carmaker that is spiraling downward in sales and financial performance, into GM's European operations much sooner than originally anticipated.
GM CFO John Devine is spending much of his time in New York, working out a strategy with bankers for getting Fiat as quickly and cheaply as possible.
GM executives believe they may need to accelerate the purchase of the 80 percent of Fiat Auto that GM doesn't already own. GM wants to stop Fiat's dismal fall before the company becomes worthless. The longer term upside: The GM-Fiat combine would be the largest automaker in Europe.
A team of GM executives in America and Europe is working on blending Fiat Auto with GM's Adam Opel AG, according to GM sources. The team is preparing for joint product development, coordination of the various brands and models, and acceleration of synergies in purchasing, powertrain and back offices.
Fiat and GM's Opel/Vauxhall now compete directly in every significant European market segment. The brand strategy, which will aim to reduce cannibalization, is complicated by GM's need to position its newly acquired Daewoo brand in Europe.
Umberto Agnelli, younger brother of Fiat patriarch Giovanni Agnelli, is understood to be ready to sell the car division that Giovanni had vowed to keep. Giovanni, 81, is undergoing treatment for prostate cancer in New York.
GM is trying to make the best of a potentially disastrous situation. After acquiring 20 percent of Fiat Auto two years ago for $2.4 billion, GM is committed to buying the remainder as early as 2004 if Fiat S.p.A. chooses to sell it.
Meanwhile, Opel is struggling and GM must also integrate Daewoo. Adding Fiat Auto to the mix would be another challenge for top management.
Fiat S.p.A. could force GM to buy the rest of Fiat Auto by exercising a put option that takes effect in January 2004, with the price set by investment bankers. But GM sources say they want to do the deal now, before Fiat Auto collapses. Fiat Auto has lost $438 million through April this year as sales have dived.
The total market capitalization of Fiat S.p.A. had dropped to just $7.6 billion last week. Fiat Auto had sales of $22.8 billion in 2001, representing 42 percent of Fiat S.p.A. sales of $54.2 billion.