Fiat confirms talks with GM for European operations

Posted on May 3rd, 2009 • by Bill Cawthon

Fiat SpA confirmed today that it is talking to General Motors Europe (GME) about acquiring GME’s troubled European operations. The Italian automaker wants Opel, Saab and Vauxhall to assemble an automotive operation large enough to be competitive in the future world market. Fiat CEO Sergio Marchionne has said an automaker needs to be able to produce at least 5.5 million light vehicles per year to achieve long-term survivability.

The new automaker would have sales roughly comparable to Volkswagen AG, the world’s second-largest car company. It would be larger than either General Motors or Ford. With the combination of Chrysler, Fiat, Opel and Saab (Vauxhalls are rebadged Opels with right-hand drive), the company would offer a full range of vehicles from micro-cars to full-size pickups and a wide range of vans suitable for the European and North American markets.

Fiat SpA, which encompasses many operations outside of the auto industry as well as a large agricultural and construction equipment subsidiary and a full-line truck operation, is considering a number of scenarios including spinning off the Fiat, Lancia and Alfa Romeo brands into a new company with $108 billion in annual revenues. At this time, Fiat’s ultra-premium Ferrari and Maserati lines would not be included in the new company.

Fiat’s board has already given its support to Marchionne to assess the potential of merging the New Fiat-Chrysler with GME. Marchionne hopes to have a deal completed by the end of this month. Shares in the new company, which might be called Fiat-Opel, would be listed in the summer. Fiat, although it will manage Chrysler, cannot take control of the company until all U.S. government loans are repaid.

Fiat already faces opposition from Magna International, a Canadian auto industry supplier whose customers include Chrysler and Daimler AG. There is also likely to be a challenge from German trade unions, who already oppose GME’s plans to close the Bochum and Eisenach plants, a plan likely to be carried out if Fiat obtains control.