No lemons for Detroit

12 March 2003 By Rob Cox Follow @rob1cox

That blows a big hole in the value of Fiat’s celebrated option to force the US group to buy the car unit. It’s not just bad for Fiat’s shareholders, it is another worry for the banks.

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General Motors, the world's biggest carmaker, is expected later this week to give shareholders an official glimpse into its plans for handling the potential liability stemming from its agreement with Fiat Auto, the Italian car company, people familiar with the companies said.

The details will likely be disclosed in the automaker's 10K filing with the Securities and Exchange Commission as soon as Friday.

Fiat has a right to sell its moneylosing car business to Fiat from 2004 under an agreement worked out in 2000 between the two companies. At the time, GM bought 20% of Fiat Auto for about $2.2bn, which it has since written off to about $220m.

Fiat can exercise this "put" agreement twice from 2004. Four investment banks will determine the value of Fiat Auto at the time of exercise.

The American carmaker is expected to hint that, in the event of an exercise of the put, it is not likely to guarantee the debt of Fiat Auto. This means while it might be forced to pay for the equity of Fiat Auto, it is not likely to keep the company afloat if it is still burning cash and requires massive capital expenditure and investment, the people familiar with the company's plans have said.

Fiat and GM officials declined to comment.

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