Secondo Automotive news

TURIN -- General Motors and Fiat will go to mediation after executives at the companies failed to reach an agreement Tuesday over Fiat group's option to require GM to buy the Italian conglomerate's troubled auto division.

GM would like to avoid having to mount an expensive rescue operation of Fiat at a time when it is losing money in Europe. The auto giant is already about to spend about $1 billion to restructure its European operations.

The two automakers disagree about the validity of the put option, which is part of an agreement made in 2000 that gave GM 20 percent of Fiat Auto for $2.4 billion. That stake was reduced to 10 percent in April 2003.

GM believes the put option, which would require the automaker to buy the remaining 90 percent of Fiat Auto, can no longer be exercised because of changes Fiat made within the company.

Fiat disagrees.

GM's decision to seek mediation appears to be a victory for Fiat, Automotive News Europe sources say. They reason that there would be no need for mediation if GM believed it was in a strong legal position. GM could allow Fiat to exercise the put, then challenge the Italian company in court.

While speculation will continue, it is clear is that the two sides are far from an agreement. And time is running out.

On October 26, 2003, Fiat and GM signed a pact that postponed any legal proceedings relating to their 2000 deal. That truce ended Wednesday.

According to section 10.08 of the agreement between GM and Fiat, disputes must be submitted to the CEOs of each company prior to either side taking legal action.

GM's CEO Rick Wagoner and his Fiat group counterpart, Sergio Marchionne, have 30 days to find a compromise.

According to section 10.08, the CEO "shall meet within 20 business days of such notice in a neutral setting in person, to attempt in good faith to resolve such matter. In the event that they have been unable to resolve such matter within 10 business days after their meeting, either party may seek the legal remedies entitled to them ..."

Fiat group contends it didn't violate the agreement when it sold 51 percent of its financial arm Fidis to creditor banks in May 2002, or when it canceled 3 billion euros of Fiat Auto debts in April 2003.

Fiat group hasn't budged from this position and now GM must face Marchionne, a tough negotiator who already has reportedly refused GM's offer of $500 million to abolish the put option. Sources say Marchionne wants $3 billion.

Even if Marchionne is successful, Fiat Auto's problems we be far from resolved.

Fiat Auto would likely burn through that cash in less than two years just to cover its current losses.

Additionally, Fiat Auto must find a cure for its chronic inability to make a profit, and it needs a larger partner.

In March 2000, the strategic alliance with GM seemed a good way for Fiat to keep its independence because of the economies of scale the partnership would provide.

If Marchionne gets rid of GM, he will have to explain how Fiat Auto will finally be able to turn the corner, and with which company's help.