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The future's in question
Page 28
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Rat's future seems to hang on Iveco's profits and GM's ability to pay its debts on time.
Oliver Dixon reports.
Less than a week after administrators were forced to admit defeat and to allow MG Rover to slide into oblivion, Fiat SpA is once again making headlines because of the awkward situation in which it finds itself.
Confidence in Fiat stock was hit by rumours that the automotive giant might have problems repaying a abn loan that falls due in September of this year — rumours that were fuelled when a shareholder meeting was postponed from May to June. At one point 11% of the company's value was written off by traders at the Milan Stock Exchange.
Share prices are inherently volatile, but in Hat's case there does seem to be cause for pessimism. Over the past five years its stock has dropped by over 85%, so in part the sudden fall is simply a continuation of this downwards trend.
However, concern is now beginning to focus more upon General Mot ois,which is now in the final stages of splitting away from Fiat after the 2000 Put and Call deal unravelled.
The question is whether GM can pay the final €550m instalment due to Fiat in May. In early April GM was forced to tell the market that it was in no danger of bankruptcy,but its fortunes are now looking extremely precarious. Its latest financial figures make grim reading— in the first quarter of 2005 it lost $1.1bn. Compare this with the same time last year when it made a profit of $1.2bn (admittedly most of this came through finance and mortgage payments).
It is citing the Fiat deal as one of the reasons for its financial problems.
There is a real possibility of a domino effect if GM fails to pay up on time. It already has plenty of creditors, and for Fiat,taking its place at the back of a long line of people looking for a payout, it could be the final nail in an already well-perforated coffin lid.
Iveco in the spotlight
This once more turns the spotlight onto Iveco; one of Fiat's few profitable divisions and unquestionably a valuable asset. During an internal reorganisation Fiat group took responsibility for engine development away from individual group companies and entrusted this role to a separate division. As a result Iveco no longer has a driveline operation of its own.
Likewise, the recent sale of 51% of its finance arm to Barclays might have been a welcome injection of cash, but it deprived Iveco of a further revenue stream.
What is left is a two-part operation. One is a truck assembly business relying increasingly on proprietary components — something that is increasingly at odds with the rest of the industry — while the other is an established dealer and aftermarket infrastructure cov ering Europe and other key territories in the global market such as the Middle East and Latin America. If GM fails to pay up on time,Fiat will be scratching around.
Buying Iveco would make little sense to one of its established counterparts in Europe or NAFTA (the North American Free Trade