GM Unlikely to Pump New Cash into Fiat

Fiat Chairman Paolo Fresco has told creditors that General Motors Corp. is unlikely to pump new cash into Fiat Auto without scrapping an option that can force GM to buy the whole company, financial daily MF said today.

MF quoted a letter from Fresco to Fiat's top creditor banks as saying the two carmakers had discussed the possibility of GM increasing its 20 percent stake in loss-making Fiat Auto via a capital increase and expanding their current joint ventures.

"Doubtless a new agreement with GM would be most attractive (but) I am firmly convinced, after more than six months of talks, that such a deal will not be reached, at least in the near term, without us giving up the 'put' option," MF quoted Fresco as writing.

Earlier today, GM Chief Executive Richard Wagoner told Reuters the next move was up to Fiat, adding he did not want to speculate what would eventually happen.

GM bought 20 percent of Fiat Auto in 2000 and agreed the put or sell option that allows Fiat to force the U.S. giant to buy the other 80 percent from 2004 - an exit clause Fiat's creditors and other investors see as key for the industrial group's future.

"This will be a very difficult decision that will certainly be the main topic of discussion at our next meetings and at Fiat's board meeting," Fresco said.

Fiat managers are due to meet creditor banks on February 14 while the board is slated to meet on February 28 to approve fourth quarter and preliminary 2002 results. Fiat Auto, owner of Ferrari, is expected to have made a net loss of about two billion euros last year as sales continued to decline and the historic carmaker kept burning through cash.

Fiat Auto's losses have dragged the insurance-to-publishing group into the red, forcing it into the arms of banks which demanded Fiat halve its net debt and restructure its core business in return for a three billion euro convertible loan.

The banks, whose loan is roughly equal to the controlling stake the Agnelli family holds in Fiat, are eyeing a plan to recapitalise Fiat Auto by about five billion euros - possibly with help from GM - and then spin off the carmaking arm. But progress has been slow so far this year and a series of talks with GM has yielded no firm plan.

Fresco was quoted in the letter as saying the groups were also working on a scenario that would see them continue joint ventures in auto powertrains and parts purchasing that were set up in 2000.

Some media have reported GM could raise its stake in Fiat Auto to 40 percent in return for two billion euros. Others have said GM is demanding to be given 100 percent of Fiat Auto's prestigious Alfa Romeo brand and its Brazilian operations.