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The BBC's Guy Ruddle
"Car companies need to be all embracing"
 real 28k

John Smith, General Motors
"Challenges are great"
 real 28k

Karl Ludwigsen, Ludwigsen Associates
"Fiat needs an alliance with a big partner"
 real 28k

Monday, 13 March, 2000, 22:19 GMT
Fiat and GM forge alliance
Fiat Punto
Fiat is the world's seventh largest car maker
General Motors and Fiat have agreed a strategic alliance.

The alliance ends months of speculation about the future of the Italian car company.

Fiat is the weakest of the European car manufacturers and has long sought an international partner.

The deal will also help General Motors - the world's largest car maker - strengthen its position in the overcrowded European market.

Let's swap shares

The two firms said the savings would come from sharing engines and platforms as well as pooling purchasing and financing operations in Europe and Latin America.

The deal is being financed by a share swap.

The world's largest car company will hold a 20% stake in Fiat, worth $2.4bn (1.5bn).

It will have the right to buy the other 80% stake if Fiat decides to sell.

In return, the Italian company will obtain 5.1% of GM, also worth $2.4bn dollars, making Fiat one of the major shareholders in the American group.

Chance to cut costs

The head of Fiat said that the deal would mean that while Fiat and GM were competitors in the marketplace, they were allies in cost cutting.

By the third year of the alliance, they expect to save about $1.2bn a year.

Fiat also hopes the deal will open the way for the company to market its luxury marques, Alfa Romeo and Lancia, in the United States.

Fiat may also be able to trim costs by working with German car firm Opel, a GM affiliate and currently its leading European partner.

The deal includes a crucial clause allowing Fiat to sell the remaining 80% of Fiat Auto to GM at "fair market value" by the end of the decade.

Union worries

Fiat's militant unions gave a cautious welcome to the deal.

"If this is an agreement on integrating production to enlarge the market so that both GM and Fiat grow, fine," said Pietro Larizza, leader of the Italian trade union federation UIL.

"But if it's the start of a gradual sale (by Fiat) it would be awful," he added.

But a rival union leader welcomed the deal.

The CGIL's leader, Sergio Cofferati, said it would be "a turning-point which is good for the Italian economy."

Tough times for car makers

The deal has been under discussion for the past year and it will end months of speculation about the future of the Turin-based company.

The increasing consolidation in the motor industry has squeezed medium-sized car makers such as Fiat.

Gianni Agnelli
Gianni Agnelli's family founded and still control Fiat
It has been linked with various other manufacturers, most recently DaimlerChrysler.

Fiat, which celebrated its centenary last year, is still 30% owned by the Agnelli family.

At the recent Geneva Motor Show, all the major US car makers made clear their intention to strengthen their presence in the European market.

But both Ford and GM have found it hard to run a profitable operation in the overcrowded European market.

Fiat, the weakest of the major European car manufacturers, was desperate to find a merger partner after major moves by rivals like Renault , which has a strategic alliance with Nissan.

Fiat's share of the home Italian market has fallen from 60% to 39%, while its share of the total European car market is only 11%.

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See also:

27 Jan 00 | Business
Fiat mulls a German merger
11 Jan 99 | The Company File
Fiat talks to Volvo
10 Jul 98 | The Company File
BMW rubbishes Fiat merger rumours
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