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Old 05-07-2009, 03:04 AM   #1
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Default GM To Swap Latin American Ops For Fiat Stake?

Four years after paying $2 billion to extricate itself from a partnership with Fiat, General Motors is seeking a stake in the Italian automaker in exchange for its Latin American and European operationsGeneral Motors is eager to cede control of its money-losing Opel unit in Germany. But Fiat has also expressed interest in G.M.’s other European operations as well as its historically profitable Latin American business, though the possible terms of such a deal have not been discussed publicly.

G.M., despite its precarious financial position, now feels it has a bargaining chip with its Latin American unit, and is negotiating with Fiat over what it might get in return.
According to two people close to the negotiations, the companies are far apart. Sergio Marchionne, Fiat’s chief executive, has indicated a willingness to give up less than 10 percent of Fiat to General Motors.

But G.M. executives are holding out for at least 30 percent of the Fiat Auto Group, according to these people, who said they were not authorized to comment publicly because the discussions are fluid. A Fiat representative declined to comment on whether G.M. was seeking a stake, as did a spokesman for G.M.

The discussions are the latest development in Fiat’s multipronged bid to grow, almost overnight, into a dominant global auto company, by acquiring Opel and a 20 percent stake in Chrysler.

On Wednesday, Fiat confirmed that Mr. Marchionne would be chief executive of Chrysler when it emerged from bankruptcy, while remaining chief executive of Fiat.

Even analysts who admire Mr. Marchionne’s stamina say they question whether combining the three companies is feasible.
“You can’t get a meeting room big enough to fit all these companies together,” said Arndt Ellinghorst, an analyst with Credit Suisse in London. “A person has to sleep, and unless he’s got a strong management team, there is a significant execution risk.”

The White House has set a June 1 deadline for creditors, unions and General Motors executives to come up with a plan to avoid bankruptcy.

Besides negotiating with G.M., however, Mr. Marchionne is seeking financial aid for Opel from the German government. He was able to persuade Washington to provide billions of dollars in support for Chrysler.

The Latin American operations of G.M. could prove profitable for Fiat well before the Chrysler deal begins yielding dividends. That is why it makes sense for General Motors to negotiate a stake in Fiat, despite their tangled history, according to Philippe Houchois, an analyst with UBS.
“It lets Fiat do the hard work of scaling up Opel, while giving something valuable to G.M. in the long run,” said Mr. Houchois.

Because G.M. in Latin America is dependent on Opel for its product line, divorcing the two operations would be difficult, a fact that strengthens G.M.’s hand leading up to the June 1 deadline.

Fiat and G.M. frequently clashed during their five-year partnership, which began in 2000. Fiat engineers said G.M. was too cautious and unwilling to embrace new technology that would have created cleaner, more fuel-efficient engines. In Germany, meanwhile, Opel engineers became convinced that Fiat didn’t share its focus on detail or quality standards.
The Chrysler bankruptcy proceedings continued Wednesday with the disclosure of the names of creditors who opposed an administration-backed plan to sell nearly all Chrysler’s assets to a new company held by the United Automobile Workers union, Fiat and the United States and Canadian governments.

The list named nine investment funds, several apparently managed by the same firms, down from 20 that had criticized the sale plan while protected by a veil of anonymity.

On Tuesday, the dissident creditors, who have been criticized by President Obama as “speculators,” asked the bankruptcy judge overseeing the case, Arthur J. Gonzalez, to allow them to remain anonymous. The judge declined, observing that the comments by the president and others did not sound like serious threats.

“It’s just their opinion,” Judge Gonzalez told lawyers. “How much more is it than that?”
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