FEBRUARY 14, 2005
GM buys off Fiat
General Motors will pay Fiat $2bn to end their five-year relationship and avoid being forced to acquire Fiat Auto, the debt laden car company owned by the Italian conglomerate. The boards of both companies have agreed the deal, which will ease the pressure on Fiat in the short term. GM will also return its 10% share of Fiat Auto. Although the deal will cost GM a lot of money it does mean that it will escape from the possibility that it could be saddled with Fiat Auto's $10bn of debt. Fiat will get some money to bolster the company but still needs to do more to bring down the debt laod to avoid becoming insolvent in the next two years. GM argued that the deal was no longer valid because of the sale of the Fiat customer credit division but Fiat then arranged with banks to get an option to buy that business back and the legal case was not as clear as it might have been and so GM has decided to bite the bullet and get out, leaving the Italian firm to whatever future it can build for itself in a very tough market.
The news is a victory of sorts for Ferrari and Fiat boss Luca di Montezemolo and reduces the need for urgency in dealings in F1. However Montezemolo will have to do a lot more to save Fiat and that will probably mean selling off more parts of the business.
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