| Who’s at the wheels'
Detroit/Milan, Oct. 16 (Reuters): General Motors said on Tuesday any change in control at Fiat could prompt the world’s largest auto-maker to end a possible buyout of the Italian company’s car-making arm.
After Italian Prime Minister Silvio Berlusconi said the government would try to help Fiat and amid talk that steps could include a government stake in Fiat or its car arm, GM’s chief financial officer John Devine said in reply to an analyst’s question on a conference call: “If there’s a change in control of Fiat SpA, the put is automatically eliminated.”
Italy’s economy ministry late on Tuesday issued a statement denying as “groundless” reports the government could take a stake in the Fiat group. But it did not say whether the government could invest in the company’s auto arm. Ministry officials were not immediately available for comment.
Fiat, owned by the controlling Agnelli family since 1899, has a put option to sell the 80 per cent of Fiat Auto that GM does not already own to the US company from 2004.
Berlusconi has pledged a “strategic strengthening” of the car sector following a slump to a record low in Fiat’s domestic market share and outrage from within his own ruling alliance at planned plant closures and thousands of layoffs. Creditor banks of Fiat, once a proud symbol of Italy’s transformation into a leading world economy, were summoned to a “top-level” meeting on Wednesday. On Tuesday, the governor of the Bank of Italy said it “wouldn’t be a sin for the public sector to get involved in an appropriate way.”
News reports have said the government and the creditor banks, led by Sanpaolo, Intes and Capitalia CPTA.MI, could pump cash into Fiat or its car arm.
Devine said GM was not involved in the restructuring. “We are on the outside,” he said during a conference call, adding that Fiat needed to come up with new products to revive its fortunes. “We are not on the inside.”
The option to sell Fiat Auto is seen as a key asset, and ratings agency Moody’s has said it would be critical in helping Fiat avoid a downgrade of its debt ratings to “junk” status.
Investors said they were also worried about the prospect of state intervention in the group. “The most negative factor is a possibility of the government intervention to save the group,” said Graziano Toli, head of equity trading at Simcasse brokerage. “The market wants other solutions, certainly not a government stake in the company.”
Fiat shares, which last week slumped to near 20-year lows, fell 0.3 per cent to 8.68 euros, sharply under-performing a 6.2 per cent jump in SXAP, the DJ Stoxx European Auto stocks index.
In a sign of the size of the slump at Fiat Auto, which is expected to lose at least 1.0 billion euros ($ 980 million) in 2002, GM on Tuesday slashed to $ 220 million from $ 2.4 billion the value of its 20 per cent stake in the car arm. GM had warned it would make a “significant” write-down of the stake it bought using shares in 2000.
Fiat said the write-down ignored the car arm’s long-term prospects. But investors and analysts were unclear what Fiat Auto’s long-term prospects were. Its share of Italy’s car market has slipped to a record low of under 29 per cent. Trying to match capacity to demand, Fiat last week announced 8,100 layoffs, or 20 per cent of Fiat Auto’s Italian staff.
But that immediately added a political dimension to the crisis and Berlusconi has opposed plans to close two of Fiat’s six plants in Italy, one of them in underdeveloped Sicily.
Wednesday’s meeting with Fiat’s creditor banks could reveal further the intentions of the billionaire businessman premier. “The meeting will be of the highest level,” a source said. “The banks are going to listen. They were asked to attend.”