COMMENT: Fiat Auto: more time to turn the corner

By Datamonitor Commentwire | 28 October 2003

Fiat Auto has a further year in which to resurrect its fortunes under new chief executive Giuseppe Morchio after Fiat postponed its option to sell. The company is certainly heading in the right direction, but a faltering car market may yet negate all the hard work.

It was announced on Sunday that Fiat and General Motors have agreed to delay Fiat's option to sell its car unit by one year. GM currently owns a 10% stake in Fiat Auto, but Fiat has an agreement allowing it to sell its majority holding to the US giant should it so wish. The postponement means that any decision over the number one Italian carmaker's future will come into effect on January 2005 at the earliest, giving Fiat more time to increase its value before any potential sale.

Perhaps of greater significance is the fact that General Motors believes the option is no longer valid following the sale by Fiat of its consumer credit arm, Fidis. The two companies have also agreed that, in an effort to clarify the contractual situation, they would not start legal proceedings against each other until December 1 2004.

Whilst many industry analysts believe a sale is unlikely, the option undoubtedly strengthens Fiat's position as an ongoing concern, having a positive affect on its debt ratings and value. Fiat is still hoping a sale will not be necessary, however, and that new models will reverse the company's fortunes.

To this end, Fiat recently launched is its Idea model, based on the Punto supermini, and targeting Honda's Jazz and GM's own Meriva. The new Panda is also one to watch, as the company seeks to return to its small car roots. The Panda should certainly prove a success, particularly in its domestic market where the current ageing model is still on sale. Revisions to Fiat's biggest-seller, the Punto, should also improve sales slightly. New products are also expected from the company's Alfa Romeo, Ferrari and Maserati brands.

With a new chief executive and new products, Fiat might be able to do enough to sustain the company and regain market share. The spectre of a falling car market will hang over it though, as the company knows any downturn would severely impede its progress.