WILL FIAT Group ask General Motors to buy the remaining 80 percent of Fiat Auto it doesn't already own before January 2004, when the put option starts?
Here in Turin, the feeling is that nothing will happen before the second half of 2005.
In other words, Fiat Auto has been given another chance.
If its new CEO Giancarlo Boschetti can fix the auto business, Fiat Auto most likely won't be sold. If Boschetti's revival plan doesn't work, Fiat Auto will be sold - and maybe sooner than January 2004.
Boschetti expects Fiat Auto to earn 'serious profits' in 2005. To show the world you are making proper money, you need at least the first half results - which will be announced in late July 2005.
Boschetti's 'back to the basics' plan to revive Fiat Auto was well received by financial analysts and the press. Employee unions also accepted it, though they disagreed of course on the subject of layoffs.
To sell the remaining 80 percent of Fiat Auto to GM would be a safe harbor for Fiat group. The cash hemorrhage would immediately stop. But it is hard to know how much cash the Italians could obtain by selling. Some pessimistic analysts say GM could just wipe out Fiat Auto's net debt of 1.7 billion, leaving Fiat group with no cash from the deal.
The most optimistic analysts still consider the sum of Fiat Auto's parts is worth between 4.4 and 5.5 billion. Thus if GM left the Italians with their debts it would spend 3.5 to 4.4 billion for the remaining 80 percent. It would be a great bargain considering that it paid $2.4 billion (2.54 billion) for 20 percent in March 2000.
But it is still too soon for Fiat to decide what to do with the car group, which includes the Fiat, Lancia and Alfa Romeo brands. Boschetti is just getting started with his plan. The lower-level operating levels of his new organization were only announced in mid March.
Fiat group's decision to let Boschetti implement his plan looks wise and risky at the same time.
Wise because before getting rid of such an historic part of your business - representing 42 percent of group revenues - you have to give your new CEO a chance.
Risky because if Boschetti fails Fiat Auto can no longer be a part of Fiat group. And further losses at Fiat Auto could reduce the Fiat group to just two industrial businesses - CNH agricultural tractors and Iveco heavy trucks. That's because Fiat Auto's aerospace division and the Toro insurance business would need to be sold to raise fresh cash - as is already planned for Fiat's Comau production systems unit, the Teksid foundry business and the Magneti Marelli components arm.
Boschetti has probably the toughest job in the car business: if he saves Fiat Auto, his retirement - planned for November 2004 - would be sweet. If he fails, not only would Fiat Auto go to GM, but the remaining Fiat group could be reduced to one-third of its current size.
Luca Ciferri is a staff reporter.