Fiat’s shares and bonds inevitably rallied after it announced reaching a 1.55 billion euro settlement with General Motors, but the question remains as to whether the Italian company turn around its debt-ridden unprofitable car-making division.
Fiat executives admit it will be a long, hard road and many major problems have to be tackled. The chairman of the parent company Luca Cordero di Montezemolo said: “Now that this problem has been dealt with we can look to the future with greater optimism, not just because the financial situation has improved, but also because we are entirely free to decide on new alliances with other companies. He added: “Fiat certainly felt the liability of being a company that could be sold at any time and lacked the power to make decisions. This agreement sends a strong signal to the company’s greatest asset: its people.”
The money from the so called amicable divorce provides a much needed cash injection but it covers little more than one year’s worth of cash burn at Fiat Auto. The car maker still languishes at sixth position in Europe with stagnant sales.
Last year it sold 1.06 million cars, about the same number as the previous year. Fiat’s hopes for improving those figures rest on a number of new models due to be introduced over the next three years. General Motors will now return its 10% stake in Fiat Auto and pay the damages while acquiring an interest in key strategic diesel engine assets.
Fiat still faces an uphill struggle, but does at least now have a cash cushion while working to reverse its fortunes.