Fiat plans new car giant

05 May 2009

TURIN: Fresh from gaining a 20% stake in Chrysler, the stricken US carmaker, Fiat has outlined its plans to create a car supergroup with the acquisition of General Motors' European car businesses that span Opel in Germany, Vauxhall in the UK and Saab in Sweden.

Including Chrysler, this would create a business with sales of 6m-7m vehicles (recession permitting) and sales of around €80bn ($106bn; £71bn).

The deal would involve Fiat Auto being spun off as a separately-listed company from Fiat's other industrial activities, which include trucks and agricultural equipment. The new company would be roughly the same size as VW and second in the world rankings by volume to Toyota.

The plan is the brainwave of Fiat chief executive Sergio Marchionne who began a series of meetings with German politicians to push through the plan yesterday.

On its own, Fiat doesn't have the resources to fund the deal so it is dependent on large tranches of state aid or loan guarantees from the governments concerned. In Germany there may be opposition from car unions who will envisage large job cuts and from VW, which dominates the domestic volume car market.

Meanwhile, more details of Fiat's Chrysler deal have emerged. The company is being given 20% for agreeing to make cars and engines in the US, and will gain a further 15% by hitting three goals: providing international distribution for Chrysler products, building a car in the US that produces 40 miles per gallon and making a new fuel-efficient engine at a US plant.

Fiat can then buy a further 16% of Chrysler, giving it a majority stake, when government loans likely to amount to at least $3.5bn are repaid.

Data sourced from Financial Times; additional content by WARC staff