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Monday, 13 May, 2002, 19:25 GMT 20:25 UK
Fiat's future in the spotlight
Fiat Stilo
Sales of Fiat's new Stilo model look disappointing
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By Mary Hennock
BBC News Online business reporter

Pity 81-year old Giovanni Agnelli, the honorary chairman of Italy's engineering-to-insurance giant, Fiat Group.

Not only will he miss Tuesday's shareholder meeting for the first time since 1943 because of prostate disease, but if the share price is any guide it seems Fiat shareholders want him dead.

Fiat Group's share price spiked twice last week, first as rumours swirled round the Milan stock exchange that Mr Agnelli had died, then again when he revealed his illness.

Shareholders will hear details of Fiat's losses for the first three months of this year, thought by analysts to stack up to between 275m euros ($227m; 171m) and 400m euros.

Fiat Auto loses its way

Shareholders believe it would be easier for the debt-laden group to sell its loss-making car unit, Fiat Auto, if the founder's grandson were no longer at the helm.

Mr Agnelli is known to have opposed off-loading the car maker, which produces the Alfa Romeo, Lancia and Fiat brands.

But Fiat Group clocked up its first loss in almost a decade last year - of 791m euros - and is struggling to rein in debts of 33.4bn euros.

US rescue hopes

One way to balance the books could be to force US car giant General Motors to buy the 80% of Fiat Auto's shares it does not already own, something Mr Agnelli has opposed.

Model seated in the Alfa Romeo Brera
Luxury cars like Alfa Romeo are not enough

General Motors, which has problems of its own, may not want to take control of Fiat Auto, but would have no choice under a put option exercisable from 2004.

General Motors paid $2.4bn for a 20% stake in Fiat Auto two years ago but may not offer much more for the rest of the firm.

"They'd be lucky to get the same again for the remaining 80%," said Xavier Gunner, European auto analyst at UBS Warburg in London.

Fiat Auto has debts of 6.5bn euros and is in the midst of closing or restructuring 18 factories and laying off 6,000 workers.

It has pinned its hopes on the launch of the new Stilo range but "there's a lot of anecdotal evidence to suggest that hasn't gone very well," Mr Gunner told BBC News Online.

Ferrari fundraising?

Fiat Group's woes have kept the rumour mill busy in recent days.

A stock market listing for luxury car unit Ferrari is one option, and has been pencilled in for July, the Il Giornale newspaper said.

Ferrari is a separate business from Fiat Auto.

Parts of the Teksid casting division, which makes vehicle components, are also reported to be for sale.

Three credit ratings agencies have said they are reviewing their stance on the group's debt, adding to the pressure for a solution.

Fiat Auto is the group's core business and its most disappointing, providing almost half of group's sales but only 5.1% of operating profits in 2000.

'Volatile and uncertain'

Beyond Fiat Auto, the group's engineering operations include truck maker Iveco and aviation and agricultural equipment units.

Many of these businesses are in poor financial health.

Fiat owns insurance and communications businesses.

So far, it has declined to predict its operating profit - or loss - for this year, citing "volatility and uncertainty" in its principal markets.

"It is a delicate moment for Fiat, but our industrial plans, our operating accords and our strategies are positive," said Mr Agnelli in an interview with La Stampa newspaper.

Mr Agnelli is now receiving treatment in New York, though he has promised to keep in close touch and remains "an important guy, a figurehead," according to Mr Gunner.

"Our management knows exactly what to do," Mr Agnelli told La Stampa.

But it seems shareholders think they would have more scope to do it without Mr Agnelli, whose family controls 30% of Fiat Group.

See also:

09 May 02 | Business
Fiat chairman has prostate disease
08 Mar 02 | Business
Fiat builds brands to beat debts
28 Feb 02 | Business
Fiat suffers loss
02 May 02 | Business
Fiat ponders Ferrari sale
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