Fiat shares and bonds rallied today after the Italian group won a $2 billion settlement with General Motors to avoid a long court case but also increase the pressure to revive its car arm.
Yesterday, Fiat and GM dissolved their five-year partnership, and Fiat gave up a put option to force the US giant to buy loss-mired Fiat Auto, long seen as a last-ditch exit clause.
Fiat shares were indicated up almost 8 per cent before trade began today but traded at around €6.18 at 9:23 a.m., up 4.2 per cent on the day.
"The dissolution of Fiat and GM's partnership seems positive for Fiat as it provides them with a much-needed injection of cash," said one London trader. "It also gives Fiat freedom to set up new partnerships without jeopardising ongoing product ventures," she added.
Fiat and GM had long been at loggerheads over whether the put option on Fiat Auto was still valid and the bad blood had spilled over into two joint ventures in power trains and purchasing which will now be dissolved.
Fiat will still sell GM diesel engines and will have access to economies of scale as part of GM's global purchasing alliance, but analysts said the 106-year-old carmaker would need to find new partners fast to keep cutting costs.
Fiat Auto is aiming to return to profit in 2006 but is relying mostly on cost cuts as sales struggle to grow despite unveiling a raft of new models to woo back customers.
Under the break-up deal, Fiat and GM will continue to work on common platforms, like the one that underpins GM's Opel Corsa and the Fiat Punto, a new version of which is due in September.