AFSCME 3357-HOF'S BLOG

GM pays $2 Billion to keep from buying Fiat

GM is going to pay a whopping $2 billion dollars, and in return it will get - nothing really. It just avoids having to pay $6 Billion to buy Fiat, and Fiat is worth - nothing really - or less than nothing.

In 2000 GM bought a 10% stake in Italian automaker Fiat. A part of the deal that was obscure at first gave Fiat a "put" option that would require GM to buy the rest of the company under certain circumstances. Buying Fiat, a company with no long or short term prospects of profitability would have sent GM's credit rating down to junk bond rating thereby cutting off GMs only really profitable business line, lending money.


The bottom line: Fiat had GM by the jugular and GM was probably lucky to get out of the deal for $2 Billion. Added to the $2 Billion that GM paid initially for the Fiat stake, and for a total investment of $4 Billion (about what GM paid to start Saturn including developing a new car line, engine line and dealership network), GM Got virtually nothing. Technically, it looks like they got a half interest in an engine-plant in Poland and intellectual property rights to some engines and transmissions used in Europe.

It's my understanding that heads have already rolled at GM over the Fiat fiasco, but If I were a money funds manager, I would really look into the role each of the officers and directors played in the Fiat mess. At the very least, anyone who signed off on the deal should get all incentive bonuses dinged.

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