By the end of this week, Fiat CEO Sergio Marchionne and his GM counterpart Rick Wagoner should have met face to face in a neutral location to settle the companies’ put-option dispute.
“It is too soon to say if an agreement could be reached by this coming Friday,” a Fiat spokesman said.
But one way or another, the two companies need to find a solution soon or face a damaging and costly legal battle that neither wants.
GM believes a put option, which would require it to buy the remaining 90 percent of Fiat Auto, can no longer be exercised by Fiat because of changes the Italian conglomerate made within the company.
Fiat says the put is still valid.
The feeling in Italy is that Fiat and GM will reach some kind of agreement, but possibly not before the end of the month. Such a pact would cancel the put option in exchange for money. The companies’ purchasing and powertrain joint ventures would continue.
Most likely, the Fiat-GM Powertrain joint venture will be transformed into an independent company. It would no longer exclusively supply engines and transmissions for GM’s and Fiat’s operations in Europe and Latin America.
The size of the financial compensation is said to be the most challenging issue facing Marchionne and Wagoner. There is speculation that GM is offering $500 million (currently more than E378 million) and that Fiat is asking for $3 billion. The companies deny these numbers.
In the end, little cash may actually change hands. Some sources suggest that, for example, GM could charge Fiat less for using the Epsilon platform for its new Croma large-segment car, which will debut in March at the Geneva auto show.
Others suggest that, in return for canceling the put, Fiat could end up getting a bigger share of the savings resulting from the companies’ 50-50 purchasing joint venture.
Regardless of terms, Fiat Auto looks set to loosen its ties with GM once the sides reach a settlement.
Sources say Fiat is already talking with Asian carmakers about creating a new, broad alliance. The names being mentioned include Japan’s Toyota and Honda and China’s Shanghai Automotive Industry Corp.
Other sources say Fiat Auto will aim to forge specialized partnerships with various automakers, much like it has done with PSA/Peugeot-Citroen and Suzuki. Fiat and PSA have two successful joint ventures, one for light commercial vehicles, the other for full-sized minivans. Fiat and Suzuki cooperate on an SUV. In early 2006, Fiat will launch its first SUV, which will be built by Suzuki at its plant in Hungary.
Maybe a number of specialized alliances will prove to be the most appropriate strategy to save Fiat Auto. But the end of the engagement with GM means that, essentially, five years have been lost.
Wherever Fiat Auto does post-GM, it has to tread carefully.
An increasingly competitive marketplace won’t forgive another error.
E-mail Chief Correspondent Luca Ciferri at [email protected]