GM will pay Fiat R12-billion to terminate the companies’ joint venture agreements and prevent attempts by the Italian multinational to force the US automotive giant to take over the embattled Fiat Auto division.
General Motors (GM) will pay Fiat R12-billion to terminate the companies’ joint venture agreements and prevent attempts by the Italian multinational to force the US automotive giant to take over the embattled Fiat Auto division.
The deal was sealed at the weekend by votes of both company boards after weeks of negotiations. Rick Wagoner, GM chairman and chief executive, said: “GM and Fiat have agreed that it is in the best interest of their companies and shareholders to terminate the master agreement.
“GM has derived significant benefits from its association with Fiat, including the accelerated development of diesel engines, cost savings and the joint development of certain vehicle programmes. With this settlement, our overall financial returns will have been favourable,” he said.
GM is nevertheless paying a heavy price to cancel an agreement it signed with Fiat in headier days for both companies five years ago. GM took a 20 per cent stake in Fiat Auto, which was subsequently reduced to 10 per cent, and agreed to a “put” arrangement that gave Fiat the option to sell the rest of its car unit to the American-based company.
Neither company expected the put would become an issue, but both have stumbled badly. According to a report, GM was keen to avoid taking over Fiat and argued that the Italian company had invalidated the put by restructuring. Both companies are likely to view the settlement as preferable to a drawn-out legal dispute. Besides, GM has cash reserves of almost R138 billion.
The agreement is also a relief for Fiat chief executive Sergio Marchionne, who has bought time to turn round the company, which is losing R6 billion a year. The deal opens the possibility of Fiat forging money-saving development and capacity agreements with other car companies.
However, the agreement has scuppered two reasonably successful Fiat and GM joint ventures, one on the development of engines and transmissions, and another that combined their purchasing power in Europe and Latin America, analysts said.
