News From the Auto Industry

The fuel lines are designed to meet existing LEV II emissions requirements and will contain Algal tubing, TI connectors and multi-layer hose.

Now GM is confronting potentially one of the greatest financial challenges arising from its minority investment strategy. In 2000, GM gave Fiat a put, which would force GM to purchase the remaining 80 percent of the Italian auto company in 2004. Why GM management embarked on such a dangerous and potentially expensive course is hard to imagine. Fiat’s been on life support for years and the world’s largest auto company should have known that.

It hasn’t worked out as planned because there weren’t savings enough from scale economies to offset the investment needed to revive these laggards. GM has controlled Saab since 1990 and still hasn’t found a solution to stem losses. Ford has owned Jaguar since 1999 and has failed to turn it into a consistent moneymaker with products that rival BMW and Mercedes. GM and Ford always underestimated the magnitude of the problems within these companies and overestimated their ability to squeeze savings out of collaboration.

Customer perception of engineering and fit and finish was low. Product cycles were too long. Costs were too high and management seemed unable or unwilling to recognize the eventual competitive threat of the Japanese in the once-protected European markets. We’re hard pressed to identify technology or partnership opportunities attractive enough for GM to give Fiat a put after paying more than $2 billion for 20 percent of the company. In the frothy environment of industry consolidation, GM management must have thought they snagged a prize that would give them more share in Europe. They just didn’t know what kind of prize.

There is only one reason for GM to throw more money at Fiat and, that is to buy back the Fiat put. GM has enough to deal with in terms of coping with another U.S. downturn, a fashion emergency as consumers turn their backs on giant SUVs and passenger pickups and fixing Daewoo to have to pour cash into Fiat. GM doesn’t need Fiat; it never did. GM now needs to find a way to prevent Fiat from forcing it into an ill-advised rescue.

Fiat’s stake was meaningful in Italy because of market share restrictions on the Japanese. Wherever the Japanese were able to compete freely, Fiat’s share was sliding toward zero. Fiat cars weren’t competitive against European Fords, Volkswagens or Opels either.