Fiat’s option to force the rest of its ailing car maker Fiat Auto on partner General Motors is still valid, Fiat’s chief executive said on Monday, amid reports the US giant was contesting the clause, according to Reuters.

The news agency noted that the Financial Times newspaper had quoted Fiat CEO Giuseppe Morchio as telling investors that GM believed legal problems made its promise to buy Fiat Auto from 2004 invalid, although Morchio believed the put option was enforceable.

“The put is a right that begins in 2004 and is valid until 2009,” Morchio said in a statement cited by Reuters. “I never made comments about GM’s position regarding the put.”

Reuters noted that GM bought 20% of Fiat Auto for $US2.4 billion in 2000 but last year wrote down its value to $220 million. The 2000 “Master Agreement” gave Fiat the right to force GM to buy the rest from 2004-2009, the report added.

According to Reuters, last March in a filing with the US Securities and Exchange Commission, GM said the put option “could become non-exercisable under other provisions of the Master Agreement (or) could be rendered unenforceable by reason of actions Fiat may have taken.” It did not specify those actions, but in Fiat’s yearly SEC filing the Italian group said it the believed “the put is enforceable in accordance” with the original deal, Reuters added.

Fiat maintains that selling the car maker is a secondary option and that it aims to turn it around in a €19.5 billion plan to invest in new models while cutting jobs, Reuters said.

Morchio, the company’s fourth CEO in a year, hopes the plan will bring Fiat Auto to operating breakeven in 2005, Reuters said.

On Monday, according to Reuters, Morchio said Fiat Auto was still in the red in the second quarter, but results were better than in the year-ago quarter when it had an operating loss of €394 million and in the first quarter of 2003, when it lost €334 million.

“It’s nothing to be satisfied about, but it’s a sign that there are grounds for hope,” he said, according to Reuters, reiterating that new model launches should boost results in the fourth quarter.

Reuters noted that Fiat bet on its 104-year car-making history, selling its most profitable units to fund the turnaround, and is also expected to renegotiate the terms of a €3 billion convertible bank loan, possibly in return for another €1 billion loan.

Chairman Umberto Agnelli said on Monday that Fiat would start discussions with its banks in September, Reuters added.