GM 'will be ready' if Fiat wants to sell auto unit

September 28, 2002 PARIS -- Bloomberg News reported that General Motors Corp. "will be ready" if Fiat SpA forces the world's largest automaker to acquire the Italian manufacturer's unprofitable car division, said John Devine, the U.S. company's chief financial officer.

"We don't know what's going to happen, we're not on the inside" of Fiat, Devine said in an interview at the Paris Motor Show. "If something does happen, we will be ready for it."

The Italian carmaker, controlled by the Agnelli family, expects to have a loss of 1.2 billion euros ($1.17 billion) this year as its market share falls to PSA Peugeot Citroen, Ford Motor Co. and others. Sales declined 19 percent in Western Europe through August. General Motors Corp. expects to lose at least $350 million this year in Europe.

Turin, Italy-based Fiat sold 20 percent of Fiat Auto to General Motors Corp. in a share swap in 2000. Fiat got about 5 percent of General Motors stock and an option that allows it to force the Detroit automaker to buy the rest of the auto unit, excluding Ferrari, starting in 2004.

"GM is ready with all the business cases planned for, and Fiat has to do the dirty job of fixing the business," said Arndt Ellinghorst, WestLB Panmure analyst with a "neutral" rating on Fiat shares.

The Italian carmaker's stock closed up 23 cents, or 2.4 percent, after rising as much as 6.7 percent. General Motors fell as much as $1.35, or 3.3 percent, to $40.17 and traded at $40.33 at 12:08 p.m. in New York.

Fiat has said it's trying to fix Fiat Auto, which has been unprofitable in seven of the last eight years. The losses forced Chief Executive Paolo Cantarella and Fiat Auto chief Roberto Testore to quit.

Fiat Auto plans to reduce carmaking capacity by 20 percent and may cut additional jobs, Giancarlo Boschetti, chief executive of the auto division, said at the car show this week.

"The Fiat guys have to address the issues," said Devine. "They have to get the business fixed. We think they can. They've done turnarounds in the past and had success, and they have to do it again."

Devine said he is spending "some" time planning for the possibility that the option will be exercised.

"We would want to turn it around a lot faster than 10 years," he said. He was responding to a newspaper report quoting a Volkswagen AG executive saying General Motors would need a decade to fix Fiat.

The companies formed joint ventures to share parts purchasing and engine development in Europe and Latin America, and they are developing small cars together.

Those projects will allow General Motors to see savings this year "in the hundreds of millions of dollars," said Chief Executive Officer Rick Wagoner in an interview.

The savings will be less than $500 million in 2002, Wagoner said in an interview at the Paris show. "It's significant numbers in '02, bigger numbers in '03," he said.

Wagoner declined to comment about whether Fiat will sell the car unit.

Under Wagoner, General Motors has pursued an alliance strategy of buying stakes in overseas car companies. Investors have expressed concern about some of the investments, including Fiat. General Motors has said it will write down some of the value of its Fiat investment. The transaction in 2000 valued all of Fiat Auto at about $12 billion.