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GM Get Fiat – But Not Ferrari
General Motors Corporation, the world’s biggest automotive manufacturer, has disclosed that it will take a 20% share in Fiat SpA’s Auto unit.
This latest move in the headlong trend of consolidation amongst the world’s major automotive manufacturers, gives Fiat a lifeline for its struggling Auto business and provides new avenues for sales and marketing of its cars in Europe, Latin America and North America. It could even see the return of the Alfa Romeo marque into North America, where it has been off the market for years.
For GM the deal offers extra leverage to expand its presence in, particularly, the Latin American markets where Fiat has a strong position.
Significant savings in the area of parts purchasing are also expected. These are forecast to be $1.2 billion annually by the third year and grow to an estimated $2 billion annually by the fifth year. A steering committee co-chaired by both CEOs will define possible joint ventures and identify new areas of co-operation, as well as e-business opportunities such as the in-vehicle communications involving GM’s OnStar and Fiat’s Viasat.
The Fiat group’s other business sectors, including the Ferrari and Maserati marques, are not involved in this transaction, as they are not part of the Fiat Auto business unit. The Agnelli family will retain nominal control over the alliance with GM but analysts feel that this deal could sound the death knell for the family’s influence.
The deal values the entire Fiat Auto unit at $12 billion, which is felt by analysts to be a high price tag, but Fiat shareholders were nervous at the lack of detail in the announcement and the Italian car-maker’s shares plunged by up to 10%, triggering a suspension on the Milan bourse for a while.
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Under the terms of the deal, GM will swap 5.1% of its stock, worth approximately $2.4 billion, for 20% of the Fiat Auto business. Also as part of the agreement GM will have rights of first refusal of the remaining 80% of Fiat Auto if Fiat decides it wants to sell the entire business. Paolo Fresco, Fiat Chairman, described this option, which only applies to Fiat and expires after five years, as a parachute to protect Fiat shareholders. He said this would enable Fiat to control its own destiny. “If we want to die we want to know how”, he said.