Fiat and GM Delay by a Year the Start of a Deal for Sale of Italian Car Unit to U.S. Automaker

ROME October 26, 2003; Tom Rachman writing for the AP reported that Fiat SpA and General Motors Corp. agreed Sunday to delay by a year the start of a deal that would allow the Italian conglomerate to sell its struggling auto unit to the U.S. giant.

Fiat SpA linked up with GM in 2000 in an arrangement that gave the world's largest auto maker a 20 percent stake in Fiat Auto, while Fiat got the option to force GM to buy the remaining 80 percent between 2004 and 2009. Under the new agreement, exercise of the "put option" will be delayed until 2005 and will last until 2010.

The two automakers also acknowledged in a joint statement Sunday a dispute over the agreement.

GM believes that the sale of certain Fiat Auto assets and a capital increase breached the original agreement, and therefore should allow the Detroit company to cancel the entire deal, including the put option. Fiat, however, argues that all its actions were legitimate and the deal should still be in force.

Fiat and GM also said Sunday that they had pledged not to start legal proceedings on the agreement until Dec. 15, 2004.

"GM has in fact expressed doubts concerning the possibility for Fiat to exercise the put, while we regard this option as absolutely effective," Fiat CEO Giuseppe Morchio said in a statement. "The agreements reaffirm the strong willingness of the two partners to continue to develop their current industrial ventures and search new cooperation opportunities."

The move came as Fiat struggles with huge losses in its auto unit, and tries to rebuild the company. Despite these problems, top Fiat officials have said repeatedly they do not want to exercise the put option.

Fiat reported a euro4.2 billion ($4.7 billion) net loss last year. Fiat SpA plans to slash 12,300 jobs worldwide over the next three years and close a dozen factories as part of a turnaround plan unveiled in June aimed at returning the struggling conglomerate to profitability in 2006.