Honda website
Honda website

FEBRUARY 2, 2005

Why the FIAT and GM business matters in F1

Fiat and General Motors yesterday failed to reach an agreement on whether or not the US giant must buy the Italian company's ailing car division. There was talk that GM would pay out as much as $2.4bn in cash to get rid of the put option that it signed in 2000. But these rumours were wrong and GM spokesmen continue to stress that GM believes that the put option was invalidated when Fiat Auto sold its customer credit division to pay debts. Both companies are free to take the case to court and the pressure is on the main Fiat company because it needs to radically improve its balance sheet to meet debt repayments in the future. GM does not want to pay up because the loss will have a negative effect on its earnings in 2005.

Even if Fiat does do a deal with a GM it is still facing the need for more cash and will probably have to sell one or more of its divisions and take on new debts. The sale of truck division Iveco is one option and the Lancia brand is also being mentioned as a possible target for a sell-off.

The irony of the whole business is that Fiat does not actually want to become a GM subsidiary. That would be a massive blow to Italian national pride and could easily affect the country's political stability because it would send a message to the world that Italian industry is in decline and would also lead to massive job losses and union problems as GM would have to slash costs to make Fiat competitive.

As head of Confindustria, Italy's employer organisation, Montezemolo cannot afford to fail if he wants to move on to a fancy political future.

Fiat Auto is not in good shape. It has $10.4bn in debt and falling sales and the debt of the Fiat parent company is now around $18.5bn. This needs to be reduced to $13.5bn in order for the firm to avoid liquidity problems. It does not really matter where the money comes from so long as it arrives.

There are many in F1 circles who believe that Montzemolo recently agreed to sign Ferrari up to the new Concorde Agreement simply because there was $150m in cash on the table and that might help to reduce Fiat's overall troubles as Ferrari is owned by the main Fiat company rather than Fiat Auto.

Fiat needed money once before and decided at the time to sell off a share of the Ferrari-Maserati group to raise some extra cash. If the problems continue, might not the same thing happen again?

And what would that do to Ferrari's commitment to F1?