The announcement of the share-swap deal, whereby GM gets 20% of Fiat Auto (excluding Ferrari and Maserati) and Fiat SpA (the holding company) gets 5.1% of GM, demonstrates that, while the Agnelli family is determined not to let go of the reins for now, they really had little choice about remaining independent.
Relatively weak on the global scale, it had only been a question of time before a predator would pounce. And with arch rivals Ford and Daimler-Chrysler already sniffing at Fiat's door, GM moved to consolidate its position as the world's number one car maker.
With this agreement, GM and Fiat's combined annual production reaches a figure of 11.2 million units based on 1999 figures. Potential synergies on parts, engine and platform engineering suggest a clear saving of $1.2 billion a year from the third year of joint development strategies and $2 billion from year five when there could be, for example, a single platform for the entire C/D sector. That means nine models from the Fiat Bravo/Opel Astra to the Lancia Lybra/Opel Vectra.
What is less clear is how the two companies can manage this evident clash of interests. GM and Fiat have similar, overlapping product ranges in two major markets - Europe and South America.
For now it seems that they have agreed to compete and ignore wider problems such as excess production and an excess of factories. If anything, the cross-holding venture was a defensive move. Although new Puntos are now selling through dealers at a healthy rate, Fiat's share of its all-important home market share stands at 37.7% compared to more than 50% in decades past, and while Opel returned to profit in 1999, Fiat posted a loss of 234 billion lire.
The Italians see the move as GM's attempt to own a prestige marque to fill a hole in its product range. Ford has Aston Martin, Jaguar, Volvo and Land Rover - GM's answer is Saab, Subaru and, now Alfa Romeo to give its brand image a boost. Alfa could be back in the United States with the new Spider within three years, with a strategy based heavily on e-commerce backed up by GM's own dealership and service network.
That may be good for Alfa, but the fear is that closer integration will jeopardise the very existence of Italy's car industry. Fiat's president Paolo Fresco claimed that the agreement would 'defend the interests of our employees, suppliers and the Italian industrial system by maintaining control of the decision-making process'.
But central to the agreement is an undertaking by Fiat to give GM first refusal at buying more shares should Fiat decide to sell. GM can exercise this right in three and a half years' time and will retain that right for a further five and a half years. According to Italian insiders, that's tantamount to GM taking a majority stake in the company in the near future.
They reason that the value of the transaction (€12 billion) is virtually the equivalent of Fiat's entire share capital (€16.5 billion), indicating there may be some element of a down payment. In addition, which manufacturer would want to buy a company in which another manufacturer already owns 20%?
Only time will tell, and there's nine years to find out whether Fiat's passive approach is a stroke of strategic genius or simply a way of submitting to industrial fate. For GM, the option is open. For Fiat, it is apparently already closed.
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