GM tipped to pay its way out of Fiat purchase dilemma

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GM tipped to pay its way out of Fiat purchase dilemma

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Fiat Auto will reportedly receive a payment of at least 1.5 billion euros from General Motors so that the US company can get out of a legally binding agreement that it has to purchase the 90% of Fiat that it does not already own. GM’s Chief Executive Rick Wagoner is now faced with having to buy his way out of a deal he signed four years ago creating an alliance between the two groups.

Fiat boss Sergio Marchionne holds the trump card as GM cannot afford to buy unprofitable Fiat Auto on top of its losses in Europe and high costs in the US. Fiat’s market capitalisation is six billion euros, but with eight billion euros of debt and poor sales, experts say it is actually worth – at most – a little over one billion euros. GM also has hundreds of billions of euros worth of debt. Taking on Fiat’s debt too could trigger a down-grade of GM by the ratings agencies. The haggling between the two has been intense as a deadline approaches. Some reports say the Italian car maker wants as much as two billion euros to settle the dispute. If there is no agreement the matter would have to be sorted out by the courts.