Fiat and General Motors yesterday unveiled a $2.4 billion cross-share-holding alliance, with the primary purpose of reducing the two car-makers' costs through a series of joint ventures.
The deal, which both companies stressed would preserve their independence and separate identities, is the latest stage in the consolidation of the world car industry.
Mr Jack Smith, GM chairman, said the world's largest car-maker needed to respond to the 1998 merger of Daimler and Chrysler. Mr Paolo Fresco, Fiat chairman, said the deal was expected significantly to improve the Italian group's position in the car market.
GM will acquire a 20 per cent stake in the Fiat Auto car division in exchange for $2.4 billion in GM common stock, giving Fiat a 5.1 per cent stake in the US group, and Fiat Auto an overall value of $12 billion.
Fiat has an option to sell the remaining 80 per cent of Fiat Auto to GM in three-and-a-half years. The two groups said they expected $1.2 billion of annual cost savings in three years, rising to $2 billion in the fifth year. The savings would come from joint ventures in engine and power train production as well as general purchasing.
They would continue to compete against each other in all markets except the US. Fiat abandoned the US market in 1983 with the Fiat brand and in 1995 with the Alfa Romeo brand.
But Paolo Cantarella, Fiat chief executive, said yesterday's deal would enable it to return to the US using the GM distribution network.
Fiat's Ferrari and Maserati sports car operations are not included in the partnership.
Italian unions and politicians yesterday welcomed the deal as safeguarding Fiat's independence. However, analysts described it as a defensive alliance with the two companies' seeking synergies and cost reductions.
Representatives of Fiat Auto Ireland and Opel Ireland, General Motors' subsidiary operation in the Republic, said yesterday's deal would not affect how the companies operated here.
"There are no immediate implications," said a spokesman for Fiat Auto Ireland. "This is a strategic alliance and each company will continue to operate autonomously."
