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Fiat plans European car supergroup

Publication date: 04 May 2009

Sergio Marchionne, Fiat chief executive, is on Monday due to outline plans to transform the global automotive landscape by spinning off Fiat’s core cars division, joining it with Chrysler and General Motors Europe, and creating a new publicly traded European car company.

Mr Marchionne wants Italy’s largest industrial group to separate Fiat Auto from its other divisions, join them with Opel / Vauxhall, Saab, and GM’s other European operations, and Fiat’s stake in Chrysler to create a company with about €80bn ($106bn) of revenues and sales of 6m-7m vehicles a year – second to Toyota, more than Renault / Nissan or Ford Motor, or GM itself, and roughly as many as Volkswagen.

Fiat’s head is scheduled to present his plan on Monday afternoon in Berlin to Frank-Walter Steinmeier, the German vice-chancellor, Karl-Theodor zu Guttenberg, economy minister, and Klaus Franz, co-chairman of Opel’s supervisory board and head of its works council.

In an interview with the Financial Times, Mr Marchionne said: “From an engineering and industrial point of view, this is a marriage made in heaven”.

He hopes to complete the transaction by the end of May, and list shares of the new company, tentatively called Fiat/Opel, by the end of the summer.

Mr Marchionne said Fiat and Opel would reap synergies of €1bn a year by merging their small B and midsize C segment car platforms, and absorbing Fiat’s ultra-small A platform and Opel’s upper-middle D platform.

If it clears antitrust, political, and other hurdles, the new group would marry GM Europe’s 10 plants, mostly in northern Europe, to Fiat’s 11 – mostly in Italy – to create a pan-continental powerhouse that, with Chrysler, would be a big force in Europe, North America, and Latin America.

Mr Marchionne plans to ask the UK government, and those of other European countries where Fiat and Opel have plants, to offer the new company loan guarantees. GM makes Vauxhall cars at a plant in Ellesmere Port, and vans in Luton.

The new company would see the Agnelli family’s 30 per cent shareholding of Fiat Auto diluted after the spin-off, with GM also a minority shareholder in Fiat/Opel.

Mr Marchionne had spoken of spinning off Fiat Auto from the group’s Iveco trucks, CNH farm and construction equipment, and Ferrari / Maserati luxury divisions as long ago as 2004.

The move marks the opening move in a long-awaited consolidation of an industry in deep crisis, with Mr Marchionne the first car chief to take advantage of heavy state involvement in the sector, and the availability of valuable assets being offered by GM and Chrysler essentially for free.

He said: “It’s an incredibly simple solution to a very thorny problem”.

This follows a week in which Fiat was endorsed by Barack Obama, US president, as Chrysler filed for bankruptcy protection and the two companies signed an alliance that will see Fiat take an initial 20 per cent of the US carmaker when it emerges from “surgical” bankruptcy proceedings.

Fiat’s move could spark further consolidation among competitors, but is likely to face political opposition in Germany, where some trade union and political leaders have voiced opposition to the Italian company. It is also likely to rattle VW by creating a big competitor on its home turf.

Mr Marchionne, who has discussed the plan with GM’s management, will on Monday seek to allay worries in Germany by saying he will close no car assembly plants there, and that Italy will share in any job cuts.

Based on past mergers and the two companies’ size, 8,000-9,000 jobs could be cut across Europe. Fiat Auto employed 39,000 people in Europe and GM Europe 54,500 as at the end of 2008.

Mr Marchionne said he might step down next year as non-executive vice-chairman of UBS. “I can’t do it all, so it’s unlikely that I will stand for re-election at UBS next year.”

Source: The Financial Times Limited

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