Fiat Italy's Gov't As Owner On Hold - "It Did Work With Chrysler"

MILAN, Oct 18, 2002; Tiziana Barghini writing for Reuters reports that Italy's government has put on hold the possibility of buying a stake in Fiat (Milan:FIA.MI - News), a source said on Friday as the Treasury appointed investment bank Morgan Stanley to help tackle a crisis at the carmaker.

As Fiat workers downed tools in a general strike against the government's general economic policies on Friday, the latest in a string of stoppages at Fiat's car plants, a source at the Treasury said a state stake in Fiat was off the table for now.

"The hypothesis of a direct intervention in the (Fiat) group share capital has been frozen," the source said, adding: "It never got to the stage of asking the question of whether (we would invest) in the group or the auto unit."

Prime Minister Silvio Berlusconi has pledged a "strategic strengthening" of Italy's struggling auto sector, raising speculation that the state, along with banks, might buy into Fiat, which has seen its losses balloon as sales slumped.

The government has said it wants to "safeguard" Fiat's six factories in Italy and has come under pressure from within its own alliance as well as the powerful Catholic Church to soften Fiat's plan to lay off 20 percent of its Italian auto workforce.

Trade unions have also taken up the Fiat cause and at marches across Italy on Friday to mark a one-day general strike called by Italy's biggest labour confederation, demonstrators demanded two Fiat plants marked for closure should stay open.

But in a blow to the government's hopes of finding fresh cash for Fiat and reducing the job losses, the group's creditor banks this week said they would not buy into struggling car arm Fiat Auto and stood by the group's cost-cutting purge.

The banks are believed to want Fiat's controlling Agnelli family to dig into their own pockets by selling off assets within their vast business empire, which ranges from cars and trucks to department stores, insurance and publishing.

To help fight the crisis at Italy's biggest private sector employer, the government on Friday named Morgan Stanley as an advisor. A Treasury source said the government wanted the bank to "monitor the financial sustainability of the (Fiat) group".

Fiat shares, which sank to near 20-year lows last week, were up one percent at 1015 GMT, faring better than a one percent fall for the DJ Stoxx index of European auto stocks (Zurich:^SXAP - News). But Fiat has underperformed the index by 40 percent so far this year.

GM SEEN AS SOLUTION

Welfare Under-secretary Maurizio Sacconi said Fiat first had to recapitalise and then find ways to boost synergies with General Motors Corp. , which owns 20 percent of Fiat Auto.

Fiat needs support from the government so it can access state funds to cover the cost of the planned redundancies.

Fiat has an option to sell GM the remaining 80 percent of Fiat Auto from 2004.

This week, GM said it could walk away from that commitment if there was a change in control at the Fiat group, an apparent warning to Italy's government not to consider taking a stake. Fiat Auto is expected to lose more than one billion euros this year. Weekly business magazine Il Mondo said on Friday that more than a third of the car division's capital stock had been wiped out since a 1.8 billion-euro recapitalisation in May and June.

With Fiat unable to reverse a slide in its Italian market share to a record low of under 29 percent, most analysts say the best solution is the sale of Fiat Auto to GM in 2004.