In an agreement announced yesterday (Sunday), Fiat and GM have dissolved a 2000 partnership pact including an option that could have forced GM to buy the 90 percent of Fiat Auto SpA that it did not already own.
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At Fiat headquarters in Turin, Chairman Luca Cordero di Montezemolo praised the agreement Sunday as a “a positive and excellent sign for the future.”
Montezemolo told RAI state radio Monday that the deal was important “especially for avoiding a long legal battle that would have greatly disconcerted not only all of Fiat’s workers and collaborators, but also the car markets and our customers.”
Montezemolo said the money received from GM will be used “first of all to bring (Fiat’s) financial situation within acceptable limits, but then to look ahead.”
In a statement he said: “We are delighted to have been able to conclude this agreement with General Motors. While highly beneficial to both Fiat and GM since 2000, the arrangements had become too confining for the development of Fiat Auto in today’s market environment. We now have all the necessary freedom to develop strategic growth alternatives for Fiat Auto, while retaining a base on which to build a much more constructive relationship with GM in the future.
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By GlobalData“I believe that the successful outcome of the negotiations will create an important stimulus for Fiat Auto’s workforce to achieve the ambitious objectives that they have set themselves. It is also a most positive response for our customers, for whom we will be introducing four completely new models (two Fiat and two Alfa Romeo) in 2005.”
The Chief executive Officer of Fiat SpA, Sergio Marchionne said: “I firmly believe that the settlement reached with GM is fair and equitable to both parties. While on the one hand it deals with the valorisation of the put option contained in the Master Agreement, it grants Fiat all the necessary freedom to develop its Auto business. We can now clearly focus on the operational objectives of Fiat Auto, and devote our full energies to the re-establishment and rationalisation of our brands and the building of an effective network to maximise the success of our new product portfolio. The benefits of the relationship with GM are being preserved through a long term supply arrangement and other cooperation agreements, such as participation by Fiat in the GM alliance purchasing team model.”
The settlement agreement includes, among other things, the following items:
- GM will pay to Fiat €1.55 Billion, €1 billion of which will paid immediately, with the remainder being paid upon completion of the unwinding of the Joint Ventures, which is expected within 90 days.
- GM will return its 10% stake in Fiat Auto Holdings to Fiat.
- GM will own 50% of the Bielsko Biala, Poland, plant which manufactures the
1.3 litre Diesel engine as well as 50% of the related intellectual property. - GM will co-own JTD engine technology while continuing to take most of its European requirements from the Fiat plant in Pratola Serra. Notwithstanding co-ownership of the intellectual property rights, GM cannot manufacture JTD Diesel engines outside Europe that are to be exported to Europe.
- Both Fiat and GM will continue to support the joint development of existing platforms.
- Fiat will continue to sell engineering support to GM for the development of diesel technology.
The deal does not entail a complete separation. Two-thirds of the payment covers the legal dispute, while a third covers GM’s purchase of assets from Fiat, GM’s Chief Financial Officer John Devine said.
GM will return its 10 percent stake in Fiat’s auto division and the two carmakers will dismantle their joint venture that manufactures engines and transmissions. However, the companies will continue to cooperate on engine production, development of vehicle programs and in other fields.
Fiat said 1 billion euros ($1.29 billion) will be paid immediately and the rest was expected to be paid over 90 days.
“We believe that we have reached a fair and equitable agreement that enables both companies to maintain a high level of synergy savings, but in a more focused approach that gives each of us more freedom to act in today’s competitive environment,” GM Chairman and Chief Executive Rick Wagoner said.
