APRIL 30, 2002

Fiat and Ferrari

IN the last few days there have been attempts in the Formula 1 paddock to raise fears about the financial stability of Ferrari. These seem to be part of the ongoing political battles over money, but it is not clear who is spreading them. The gist of the argument is that Fiat Auto Holdings is in trouble. It has debts of $6bn and its cars are not doing well in the European markets because of strong French and German products. Despite attempts to restructure the business the results have not been very successful and members of the Fiat management are now considering a deal which will solve the problem but which will mean that Fiat pulls out of car-making, the industry on which it was founded.

The possibility to do this is thanks to a deal that Fiat has with General Motors. A couple of years ago GM agreed to swap 5.1% of its equity for a $20% shareholding in Fiat Auto Holdings and an option to buy the whole company. The deal was intended to help both companies cut costs by pooling certain resources.

The option to buy the rest of the company for "a fair market value" can be actioned as early as July 2004 and that would mean that GM would take over Fiat Auto Holdings and its automobile brands.

Unfortunately for those spreading the rumors the story does not make sense because Fiat Auto Holdings does not control Ferrari. This is owned directly by the main Fiat company which is controlled by the Agnelli Family via a complicated series of holding companies. If Fiat did decide to sell Fiat Auto Holdings to GM, Fiat itself would have a great deal more cash and would probably be even more inclined to support Ferrari. There are plans for Ferrari to be floated but Gianni Agnelli says that the Agnelli Family will retain control of the company whatever happens. The Agnellis own 87% of Ferrari. The rest is held by Piero Ferrari (Enzo's son who has 10%) and a group of banks which own 3% of the business.

In the last few days the Agnellis have asked Fiat shareholders to confirm Fiat chairman Paolo Fresco and chief executive Paolo Cantarella for new three year terms. It is worth noting that there were no GM representatives at the Fiat Auto annual shareholders meeting last week.