Fiat and General Motors to square up in Switzerland

Milan December 12, 2004; AFP reported that Fiat obtained the right to sell Fiat Auto to General Motors as part of a deal signed in 2000.

Under the agreement, the Turin-based group can exercise the so-called "put option" any time over the next decade, beginning on January 24.

But so unattractive has that proposition become for General Motors that the US automaker has already threatened to go to court if Fiat tries to make it honour its legal obligations to buy Fiat Auto.

The American group has cited its own complex restructuring of its European operations as a reason not to take on the Fiat Auto millstone.

The Italian automaker posted losses of 979 million euros in 2003.

"At the time that Fiat signed all these documents, there was a very clear view that one possible, and a likely outcome, would have been a merger of the auto business with General Motors," Fiat boss Sergio Marchionne told the New York Times last week.

"We cannot change that now because the markets have changed and the economies are not doing as well as one would have hoped."

The Fiat chief executive has made it clear he will travel to Zurich for the showdown with GM's chairman and chief executive Richard Wagoner on Tuesday that he will vigorously defend Fiat's right to sell its auto business to GM, and will take the matter to court if necessary.

The potentially explosive meeting is exquisitely timed. A year-long moratorium on legal action between the two companies is set to expire the next day.

Falling sales and mounting losses mean that the once venerable Italian giant has seen its star wane. For GM, riven by its own troubles, Fiat Auto is no longer the attractive option it seemed only four years ago.

"We need to have our strategic freedom back," said Marchionne, who believes the GM partnership stops Fiat opening up deals with new partners.

Analysts say Fiat is likely to ask for a 1.0 billion euro (1.3 billion dollar) payment to annul the put option.

"The two partners have valid reasons to avoid a court battle with an uncertain outcome and which would be damaging to both of them. We believe that Fiat and GM will likely settle on a compromise and avoid open conflict," said an analyst who did not want to be named.

Before the showdown in Switzerland, Marchionne is scheduled to meet on Monday with Fiat's big family shareholder, the Agnellis, to explain his strategy.

The family holds a 62 percent share in IFIL, the holding company which has a 30 percent share in the Fiat Group