Fiat Works Toward Deal for Opel
Tuesday, May 5, 2009
With Chrysler in hand, Fiat chief executive Sergio Marchionne is stepping up efforts to expand Fiat's automotive empire by acquiring a majority stake in General Motors' German unit Opel.
Yesterday, Marchionne met with senior German government officials in Berlin about the Italian automaker's plan to create a three-way alliance comprising Fiat, Chrysler and Opel. The deal would bring the charismatic executive closer to his goal of manufacturing at least 5.5 million cars a year. The merger would create a wide-ranging manufacturer that would rival Volkswagen, Europe's biggest automaker.
"They've always had global ambitions," said Jim Hossack, an analyst with AutoPacific, an industry consulting firm in Michigan.
Fiat's board of directors met Sunday and authorized Marchionne to pursue GM's European operations, which include Opel and Vauxhall in Britain; GM's Swedish brand Saab is in the process of being reorganized and spun off on its own. Marchionne will be investigating the potential alliance "over the next few weeks," the board said in a statement.
The board expects the new company would have revenue of about 80 billion euros ($107.3 billion) a year.
If a deal is completed, Fiat is considering spinning off its car unit into a new publicly traded company that combines Fiat Group Automobiles with GM's European operations, according to the statement.
Fiat Automotive, which built 2.2 million vehicles last year, accounted for 45 percent of Fiat's business in 2008. A spin-off would leave the manufacturer with the agricultural and construction equipment company CNH Global and Iveco trucks.
Max Warburton, an auto analyst at Sanford C. Bernstein in London, questioned whether this new auto conglomerate would be viable.
"Chrysler is chronically loss-making," he wrote in a note yesterday. "Opel is seriously unprofitable. Fiat in Europe has barely been profitable in the last 20 years [but fortunately Brazil is very profitable]."
Fiat, which didn't put any money into its recent Chrysler alliance, is 6.6 billion euros ($8.85 billion) in debt. Standard & Poor's has warned that the Italian automaker may not have enough cash and lines of credit to cover all of its obligations over the next year.
After the Berlin meeting yesterday, German Economy Minister Karl-Theodor zu Guttenberg told reporters, "Fiat wants to do this deal without taking on debt."
Fiat isn't the only company interested in Opel, which says it needs 3.3 billion euros ($4.43 billion) to ride out the economic downturn. GM chief executive Fritz Henderson said there are more than six parties interested. Canadian auto parts maker Magna International said yesterday it intends to take a minority stake in the company after talks with the German government.
From an operational standpoint, Opel would complement Fiat and enhance the Italian automaker's presence in Europe, analysts said. Together, the companies can save money by sharing platforms, powertrains and engineering.
"Fiat is pretty strong in southern Europe and pretty strong with smaller vehicles," Hossack said. "This gives the opportunity to get northern Europe and midsize vehicles."
Marchionne has moved quickly to build his new empire. On Thursday, the Italian automaker finalized its partnership with Chrysler, which gives Fiat an initial 20 percent stake in the company. On Friday, Marchionne confirmed his interest in Opel, saying it is Fiat's "ideal partner." Then on Sunday, he sought approval from Fiat's board.
Now Fiat must get the support of the German government, which is heading up the search for Opel's new investor. And there are still a number of parties -- U.S. bankruptcy court, unions, German politicians -- that can block the deal.
"Whether this combination can be made to work from a management, political or cultural view is unclear," Warburton told investors. He wrote that he remains "unconvinced that Fiat has the management depth to pull off this very ambitious task."