16 - 22 March 2000

Fiat-GM deal could lead to synergies locally

by David Kelleher

The strategic alliance struck between Italian car manufacturer Fiat and American car giant General Motors could lead to a certain amount of synergy between their representatives here in Malta. However, it is unlikely that the impact will be felt immediately.

Contacted yesterday, only the local representative of General Motors, Maurice Mizzi, was available for comment as senior officials of Fiat in Malta were abroad. Speaking to The Malta Business Weekly, Mr Mizzi, chairman of Mizzi Ltd, GM's representatives in Malta, said that it was too early to say what the impact will be on the local market.

"It is difficult to see what the outcome will be, however, one can expect that there will be certain synergies between the two companies in a number of areas. It depends on the level of collaboration. However, for a year or two there will not be much change," Mr Mizzi told The Malta Business Weekly.

He added the car industry was changing and mergers and alliances were inevitable.

"The car industry goes through cycles; sometimes you make a profit, at other times you don't. Fiat were making a loss so such a move is aimed at helping the company to reduce those loses. The bottom aim of this strategic alliance is to help Fiat make a turnaround in business," Mr Mizzi said.

Senior officials from UCIM, Fiat's representatives in Malta were not available for comment as "they are abroad".

The agreement between Italy's Fiat and the world's top carmaker General Motors gives a new impetus to global auto consolidation.

The Detroit giant emerged as the front-runner in alliance talks with Turin-based Fiat, as rival suitor DaimlerChrysler dropped out of the running and Italian authorities put pressure on Fiat to break its silence on future strategy.

With DaimlerChrysler no longer interested in the deal, it was up to GM to reach an agreement with Fiat, which has been secretly scouting for a partner for months to boost its weak profit margins.

Under the accord, GM will acquire a 20 per cent stake in Fiat Auto in exchange for US$2.4 billion in GM common stock. Fiat will take a stake of some 5.1 per cent in the Detroit giant, becoming its largest single shareholder, a GM spokesman said. The two carmakers expect to save up to US$2 billion a year from the alliance, which puts GM in position to take over Fiat completely should the Agnelli family ever decide to abandon the auto business.

A deal with GM will focus mainly on components and motors, with both firm drawing up an industrial plan promoting joint investments in Europe and synergies between Fiat brands and GM's Opel brand.

GM and Fiat said the deal - in which the two car firms will swap interests worth US$2.4 billion - would generate synergies of US$1.2 billion annually by the third year, rising to US$2 billion by year five when they would be using common components.

Importantly, GM and Fiat will remain independent from one another and will continue to compete in global markets. For now, the two firms do not plan to build common platforms, the basic structure that dominates vehicle development costs.

Car industry analysts say GM has a history of letting partners stay independent, with major stakes in Isuzu and Suzuki, whereas DaimlerChrysler was thought to demand control.

Analysts expect the companies to go that route eventually as it would result in significant savings. The deal will see Fiat's smart Alfa Romeo brand reintroduced to the United States, where the Italian group has been out of the picture for several years. Ferrari and Maserati, the world-famous sports cars which Fiat owns under a separate division, are not part of the deal.

Fiat and GM said they did not plan to request seats on each others' boards but would exchange executives at a lower level. Fiat also said it would study whether to join the Internet trade exchange being set up by GM, Ford and DaimlerChrysler.

While Fiat is controlled by the powerful Agnelli family, the government moved swiftly to give Italy's flagship industrial company the political assurances it may need to close a deal.

Patriarch Gianni Agnelli celebrated his 79th birthday on Sunday apparently ready to reduce the family's involvement with the car business that his grandfather founded 101 years ago.

In an interview with La Stampa newspaper, Mr Agnelli said he had rejected DaimlerChrysler's offer, despite urging from bankers and one of Italy's top financiers Enrico Cuccia.

He denied that the family was "selling out in instalments" and said that "certain bankers" thought the family would make more money if it sold off the entire auto unit to Daimler Chrysler, rather than exchange part of it for GM shares.

Agnelli's grandfather Giovanni founded Fiat more than 100 years ago, and built Fiat's historic Lingotto factory in 1912 modelled on the Ford Motor assembly lines he visited on a trip to Detroit.