General Motors plans to distribute the Brazil-built Fiat Palio and Siena models in Mexico, according to sources.
The partners are also discussing possible logistical synergies in their respective Brazilian operations.
Insiders say an agreement to sell the Palio and Siena through GM dealers in Mexico could be announced as early as this week. The supermini twins, based on Fiat's 178 world car platform, are targeted at emerging markets.
Fiat Group Chairman Giuseppe Morchio flew to New York on May 15 to meet with GM CEO Rick Wagoner to conclude the deal. Before leaving, Morchio said he was looking for opportunities "to broaden our industrial cooperation."
The two companies signed a strategic alliance in March 2000. GM and Fiat Auto created two joint-venture companies: one for global purchasing for their operations in Europe and Latin America; another that merged all powertrain operations in the same regions. The companies have also worked together on common vehicle platforms.
Meanwhile, Fiat Auto remained deeply in the red in the first quarter, despite cost-cutting measures that it said are "on track to generate E1 billion annual cost savings."
Fiat Auto reported a first-quarter operating loss of E334 million, lower than the E429
million deficit in the same period of 2002, but higher than the E180 million lost in the fourth quarter last year.
Revenue decreased 17.7 percent to E4.93 billion compared with the same period last year as unit volume fell 19.1 percent, from 518,000 to 419,000 units.
In a statement, Fiat said the 99,000-unit volume decline is about one-third attributable to a drop in unit sales. The rest reflects a production shortfall of about 31,000 cars caused by a flood at the Termoli, Italy, engine plant in late February and aggressive actions to cut vehicle inventory.
Fiat said western Europe inventory has been reduced by more than 45,000 since the end of 2002.
At the end of March, vehicle stocks fell to 292,000 units, equal to 1.4 months of sales. Fiat said inventories stood at 437,000 units or 2.1 months of sales at the close of the first quarter of 2002, and 340,000 units or 1.7 months at the end of 2002.
Fiat said that scaling back inventories cost E53 million in additional rebates compared with the amount spent in the first quarter of 2002.
One outcome of the de-stocking program is that Fiat Auto's western European registrations fell only 13.7 percent in the quarter, while wholesale deliveries to dealers decreased 23 percent.
Analysts had expected Fiat Auto to lose E200 million to E250 million in the first quarter and were surprised that the loss reached E334 million. The company said previously that Fiat Auto had in the first quarter cut E142 million in production costs, E118 million in overhead and E25 million in other costs. But the E284 million savings were partly offset by a E136 million decrease in the operating margin due to lower volumes and the higher rebates.
Morchio didn't forecast Fiat group or Fiat Auto results in the full year. They are expected in late June when he presents his "industrial action guidelines." Morchio said the group operating result "will remain negative, but less than in 2002."
Last year, Fiat group reported an operating loss of E762 million and a net loss of E4.26 billion. Fiat Auto contributed a E1.34 billion operating loss and a E2.74 billion net loss.