| Fiat and GM no longer have any obligations Leading US and Italian automakers - General Motors and Fiat Auto - managed to agree to sever relations. Last Sunday, a two-month dispute between the companies ended in an out-of-court agreement: GM agreed to pay 1.55 billion euros for refusing to purchase 90% of Fiat shares (the American concern still owned 10% of the shares), and the parties terminated the five-year partnership. As Bloomberg reports, Fiat investors initially expected a larger sum - 1.8 billion euros, but an emergency meeting of the company's board of directors, held on Sunday, chose not to take risks. After the severance of relations with GM, “new prospects are opening up” for Fiat, Italian Prime Minister Silvio Berlusconi said yesterday. And the head of Fiat, Luca Cordero di Montezemolo, who is in India, admitted that “it’s like a mountain has been lifted from his shoulders”: “Now Fiat will decisively move into the future,” he said. “The endless discussion of financial issues will stop and it will be possible to talk about new models , customer needs and market prospects."
In 2000, GM and Fiat entered into an agreement according to which, starting January 24, 2005, the American company must exercise an option to purchase a part of Fiat Auto that does not belong to it at the first request of the parent concern - Fiat SpA. The leader of the Italian industrial industry could take advantage of this privilege until July 2010, but chose to sell himself to the Americans as soon as the terms of the contract allowed. GM, in turn, categorically refused to put up with this state of affairs. Its lawyers argued that Fiat violated one of the clauses of the main agreement by selling part of the shares of the Fiat division without notice. The dispute dragged on, promising huge costs for both companies. "If we had not reached the agreement, we would have had a long legal battle ahead of us, as we were going to start litigation this week to exercise the option," said Fiat Chairman Lucia Cordero di Montezmolo.
Many Western experts agree that GM's decision turned out to be the best way out of the current situation: legal proceedings could have had a negative impact on the company's rating, and the final outcome of the case could have been much worse. "We estimate that GM has enough cash to make the necessary payments," said Standard & Poor's analyst Scott Sprinzen. In addition, the out-of-court settlement allows the American company to retain a patent on diesel engine technology. The agreement stipulates that GM will give up its 10% stake in Fiat Auto, receiving in return Fiat assets related directly to the production of 1.3-liter diesel engines, the production of which is established in Poland.
Despite its leadership position in the global auto business, GM is not in the best shape. Recently, it has been rapidly losing its position in the North American market, experiencing strong pressure from Asian competitors. Its management is trying with all its might to prevent a decline in its credit rating. If the dispute had been resolved in favor of the Italians, GM's position in the market would obviously have been shaken. "This is a great solution to such a significant set of problems," said GM Chief Executive Richard Wagoner. “I am confident that we have reached an agreement that satisfies both sides.”
For Fiat, the agreement opens up new horizons. The company's executive director, Sergio Marchionne, has repeatedly made it clear that shareholders are counting on GM's money, because only timely financial injections can save Fiat from ruin. Since Fiat entered into a partnership with GM in 2000, the group has not been profitable. At the moment, the automaker's total debt exceeds 8 billion euros. According to management, it was very difficult to change the situation until the last day. The alliance with GM did not allow us to find new, more promising partners and return to profit. “The main thing is that the agreement solves all our problems with GM that have plagued the concern for the last five years,” Mr. Marchionne said yesterday at a press conference in Turin. - The new treaty gives us absolute freedom. Now we can decide our own future.”
On Monday, the market immediately reacted to the success of Italy's largest industrial group. Thanks to the concluded agreement, Fiat SpA share prices increased by 3.8%. Denis UVAROV |
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