Why is General Motors reluctant to take over Fiat Auto?

According to Automotive News Europe, it's perhaps because Fiat negotiated an amazingly tough deal back in March 2000 when the two automakers became alliance partners.

Details of the previously undisclosed pact show that if GM took over Fiat, it must:

- Immediately pay in cash all Fiat Auto intra-company debt (analysts estimate this is about €6 billion out of Fiat Auto's total debt of €8 billion).

- For five years, maintain Fiat Auto's global management, headquarters, engineering and R&D centre in Turin, Italy.

- For five years, consult with Fiat group before appointing a Fiat Auto CEO.

- For two years, consult with Fiat group before restructuring Fiat Auto.

- For five years, buy parts from Fiat group companies without renegotiating prices or terms.

- Pay royalties to Fiat group to use the Fiat brand: "Fiat will determine...the terms for a perpetual licence."

Fiat has been locked in a battle with GM for more than 12 months over a put option that was included in the pact. This allows Fiat group to hand over to GM its struggling automotive operations anytime between January 24 and July 24, 2010 if it cannot turn them round.

Annoyed that GM appears to be winning the publicity battle over the two companies' dispute, Fiat last month posted details of the 2000 agreement on its website.

For GM, the deal was negotiated by then-chairman Jack Smith and CEO Rick Wagoner. They wanted to block a $US12 billion cash offer for Fiat Auto from DaimlerChrysler - part of DCX's plan to unseat GM as the world's biggest automaker.

GM blocked the DCX move by offering Fiat a strategic alliance. At the Detroit motor show this month, Fiat group CEO Sergio Marchionne said when the alliance was signed in 2000, both sides believed an eventual merger of Fiat's automotive business with GM was likely.

Without Fiat Auto, the industrial conglomerate would be a very profitable company with less debt and about €6 billion in new cash.

For GM, the prospect of owning Fiat Auto is financially less appealing. The automaker has already written off its entire $2.4 billion investment in Fiat Auto.

It has claimed the put option was no longer valid because of actions taken by Fiat.

Instead of arguing the issue in court, GM on December 14 agreed to a 30-business day mediation.

GM has plenty of other problems without taking on Fiat Auto with its huge operating losses and failing market share.

GM's European operations are losing money and in the US it faces the huge burden of paying healthcare costs for retired employees.

Fiat extends period of mediation with GM over put option