General Motors, which is struggling to return its own European automotive operations to profitability, would save itself $US1 billion “and countless headaches” if it could avoid taking over Italy’s struggling Fiat Auto, analysts have told the Reuters news agency.

Citing a report in the the industry publication Automotive News, Reuters said a reorganisation at Fiat Auto planned by Fiat SpA would probably cancel the parent company’s option to sell its remaining 80% stake in Fiat Auto to GM in 2004.

Reuters noted that GM Europe (GME) – which includes the Opel, Vauxhall and Saab brands – faces mounting losses this year, falling market share and sluggish sales in its core markets of Germany and Britain. Analysts told the news agency that merging with the money-losing Fiat Auto would only add to GME’s problems.

“We are not convinced that two sick players make a healthy company, and both companies are competing in the same segments,” an analyst at a major German bank told Reuters.

Reuters said that GM bought a 20% stake in Fiat Auto for $2.2 billion in 2000 hoping joint ventures in developing engines and in purchasing supplies and equipment would save the companies a combined $2 billion a year by 2005.

But, Reuters added, the performance at both companies has deteriorated over the past two years and, last October, GM wrote down its Fiat Auto stake by nearly $2.2 billion to $220 million.

Reuters said that GM’s investment included an option giving Fiat the right to sell the remaining 80% stake in Fiat Auto to GM beginning in 2004.

According to Reuters, Goldman Sachs analyst Gary Lapidus estimated GM could save $1 billion if it could avoid taking over Fiat Auto.

Reuters added that GM’s European automotive operations lost $882 million in the first nine months of this year, including a $407 million charge in the first quarter for the “Project Olympia” restructuring of the Opel and Vauxhall units in Germany and the UK to trim capacity and cut thousands of jobs.

Reuters noted that GM officials said earlier this year that the European operations would miss their target of cutting 2002 losses to about $350 million before charges.

“Opel/Vauxhall has got enough on its plate. They’re still struggling with this big Project Olympia program,” said DRI Automotive analyst Nigel Griffiths told Reuters.