Money Matters, Simplified.
Fiat, GM deal could create global car giant
by Jamie Anderson - May 4, 2009 - comments
Italy’s Fiat is eying a deal with GM’s German unit Opel
Turin, May 4: Italy’s Fiat SpA (BIT: F) is reportedly in talks with General Motors Corp’s (NYSE: GM) German unit Opel to stitch a deal wherein it would spin-off its car business from the rest of its operations and amalgamate it with the latter. The Turin based Fiat intends to spawn 80 billion euros in annual revenue if its alliance with Chrysler and GM’s European operations sees the light of the day.
Does the deal makes strategic sense?
Fiat’s CEO Sergio Marchionne admitted that after bagging the U.S. support for a partnership with Chrysler LLC , an agreement with GM is his next aim. He said, “Now we have to concentrate on Opel. They are our perfect partner.”
The deal makes good strategic sense for GM as well as it needs a collaborator to enable it run Opel, failing which the maker of the compact Astra faces bankruptcy. GM has sought $11.6 billion U.S. aid to bailout its German unit. It has also sought aid from governments in Germany, the U.K. and Spain.
An alliance with Fiat entails the finest tactical solution in terms of sharing platforms, technology and management for both automakers.
About Opel
Founded on 21 January 1863, Opel began operations as a manufacturer of sewing machines. In 1899 it started making automobiles. The company was acquired by General Motors in 1929 and as on date operates as its subsidiary. Part of GM Europe, Opel is GM's largest European brand and forms the automaker’s core European business along with Vauxhall Motors.
Opel has been grappling with quality issues and that is turning away its customers. According to the European Automobile Manufacturers’ Association, Opel and Vauxhall have lost market share from 12.6 percent in 1993 to 7.9 percent in 2008.
The stumbling block
Klaus Franz, head of Opel’s works council, “We are open to working with Magna (Canadian car company), but not with Fiat.” According to him a deal with the Italy-based automaker, “would be a Fiat rescue at Opel’s expense.”
The labor spokesperson opined that a deal with Magna International Inc (TSX: MG) would enable Opel access latest know-how and would provide it a chance to venture into new markets.