Fiat's "Put" Option Looms Large for GM

[Branden]

Fiat says mediation with GM will end Feb. 1

ROME - Fiat SpA said Monday the end of its mediation period with General Motors Corp. had been pushed back until Feb. 1, but that it will have the option to compel GM to buy its troubled auto division beginning the following day.

The announcement came on the day mediation over the "put option" _ through which Fiat has the right to sell its car business to GM _ was due to end.

Fiat said it moved the date "to wait for the conclusion of the process of mediation." The company said the put option is "an important instrument for Fiat, and is valid and can be exercised according to the terms agreed."

Shares in Fiat fell 0.7 percent to 5.84 euros ($7.64) in midday trading on the Milan stock exchange.

Fiat said it would be able to exercise the option beginning Feb. 2 until July 24, 2010. The option is part of a 2000 agreement that says the Italian company can legally compel the U.S.-based auto giant to acquire the 90 percent it does not already own of Fiat Auto.

In a statement, Fiat rejected claims by GM that the Italian company may have breached the agreement through actions including a recapitalization of Fiat Auto Holding BV and the sale of a 51 percent stake in Fiat Auto's consumer finance division.

Taking Fiat's auto unit under its wing could be a problem for GM, which is already grappling with woes at its Opel unit in Europe. GM announced plans last year to cut as many as 10,000 jobs at Opel in an attempt to return it to profitability. FULL ARTICLE from www.detnews.com

[surferdude00711]

Why would they buy fiat? Don't they have enough problems giving Pontiac preformance cars and Saab something other than rebadges?

[VivienM]

Originally Posted by surferdude00711

Why would they buy fiat?

Well, they'd buy Fiat because they have to under this contract.

The bigger question is... Why did anybody at GM, especially given how risk-averse GM management tends to be, agree to this contract?

[AmericanRevolution]

Originally Posted by surferdude00711

Why would they buy fiat? Don't they have enough problems giving Pontiac preformance cars and Saab something other than rebadges?

You didn't know? Fiat can FORCE GM to buy it... you didn't see the post I made a little while back about this?

EDIT: Here's my post: http://forums.gminsidenews.com/showthread.php?t=10360

[mgescuro]

Originally Posted by AmericanRevolution

You didn't know? Fiat can FORCE GM to buy it... you didn't see the post I made a little while back about this?

EDIT: Here's my post: http://forums.gminsidenews.com/showthread.php?t=10360

Then what happens if GM *IS* forced to buy Fiat??
Or... what happens if GM loses $1B to make the put go away.

Which is worse for GM? $1B cash? Or Fiat/Alfa/Lancia and its debt load.

THere's probably too much overlap between the Fiat/Alfa/Lancia lineups and the current GM stable. Saab is arguably stronger than Alfa. Daewoo, Subaru, Chevy, Opel cover Fiat and Lancia.

So why bother? GM acquired Fiat, just so Ford couldn't. And the strategy backfired.

[fan]

Maybe it's not such a desperate situation...I mean Fiat could return to profit.
They posted losses because they developed their cars on their own. Only in a few years will appear the new cars, developed from scratch with GM. Till now they exchanged only engines not entire architectures. So there weren't complete synergies between the companyes. (Epsilon wasn't used on any Fiats for ex.). Volkswagen gets profits with Skoda in Europe even if it sells four times less than Fiat(total synergies between Volkswagen and Skoda brands). Not to mention the obvious Chevy - Pontiac - Buick synergies. What would be Pontiac without GM?(...)
The overcapacity problem can be handled ...In the worst case cut jobs, but still, this is a way out( a painfull one). They can handle it.
After all, GM afforded losses at Opel many years before they decided that the cut offs were inevitable.
Also Fiat means 2,000,000 units per year added to GM's global output. If GM settles down at 10 mil. units per year with healthy product offerings, there would be no question if GM will be the first or that it will survive. It would eventually resist even to political misfortunes.

[ibechip]

If GM managed Fiat right, they would definately be an important asset but I'm worried about the mismanagement that's plagued the rest of the GM divisions in the past decade.

[Slack]

Maybe GM could find a way to co-ordinate their inevitable ownership of Fiat SpA with the emerging car market in China. Think about it. Every region in the world has cars designed specifically for it. GM could use Fiat/Alfa/Lancia to gain market share in China. If Fiat is really losing money, no one will care if these cars are repositioned for Chinese tastes. GM will lose money at first, but with smart planning, good engineering, and the timing afforded by China explosion onto the automotive scene, there is no reason they could not do this and crank out profits in a few years.

[caprice 511]

I believe GM could use FIAT and possibly merge all their euro vehicles into one company , just like here in the states . More resources , better styling are the key elements that GM can gain without rebadging (say Buick for an Opel) .

[mgescuro]

Originally Posted by caprice 511

I believe GM could use FIAT and possibly merge all their euro vehicles into one company , just like here in the states . More resources , better styling are the key elements that GM can gain without rebadging (say Buick for an Opel) .

Well, if GM "has" to purchase the remaining parts of Fiat, GM would have no choice but to shut down the redundant areas and merge and consolidate quickly. GM would also probably have to hack some models and divert resources from elsewhere.

I am not familiar with the Fiat and Opel lineups to make any real judgements about potential fits. Nor am I familiar with Fiat and Opels non-European markets and whether GM's Asian brands overlap.

Though, Alfa could make a nice return to the US with some of their cars, there will be overlap with the 9-2 and 9-3.

But GM is benefitting from using Alfa and Fiat parts on their cars already -- like the Kappas.

[powervette]

**************** off Fiat !
2,3 years ago Italians were upset that a foreign company was going to buy their national jewels...

[Slack]

Originally Posted by mgescuro

I am not familiar with the Fiat and Opel lineups to make any real judgements about potential fits. Nor am I familiar with Fiat and Opels non-European markets and whether GM's Asian brands overlap.

Another point I'd like to make about China is its sheer potential. Imagine adding a second US market to the world demand. Now realize that there aren't that many marques in a country with virtually no automotive heritage. I'd be willing to bet that the Chinese market would except more product overlap. For starters, we are looking at a country full of first time buyers. Second, They have nothing really to compare it to in the short term. Therefore, GM has plenty of room in this market to sell Fiat/Alfa/Lancia cars that share parts with GM and GM Europe cars while keeping those cars out of market. Essentially this would make Fiat a Euro-Chinese brand. I know its not the best idea, but it could work and GM has to do something.

[alfetta]

We must not forget that GM and Fiat have signed a JV to co-develop powertrains, platforms
etc. and co-purchase automotive parts. GM could benefit from dieselengines, direct injection,
Uni Air, selespeed. Allthough Ferrari/Maserati are kept out of the agreement there might be
some input which could benefit both GM and FIAT. Or work together as they have done in Thailand.

Example:

Two years ago sales in Thailand of the Alfa 156 boosted after FIAT Auto entered into an agreement with its strategic partner GM to assemble the 156 locally.
Very profitable for both by utilising excess capacity at GM plant at Rayon.
Alfa Romeo previously never made an effort exporting cars to the East but the 147/156
have caught on and allready Alfa Romeo has the biggest car club in Thailand.

Put-option might result in a gunshotwedding or a hefty summ will be paid but both companies would
still be connected.

[mk1700]

GM: Dont buy it!

[dreadnaught1181]

If I'm not mistaken, GM has had a hard trying to gain sales in Europe which is why they use Opel.

If Fiat or Alfa Romeo has a better position sales wise in the market then why not replace Opel with it? Personally I'd love to see an Alfa Romeo Spyder Veloce based on the Kappa architecture with an Alfa motor.