Next week Fiat will announce that it is planning to begin legal action against General Motors in order to re-assert the validity of the controversial 'put' option, 'well informed' sources have told the Financial Times.

The 'put' option was inserted into a contract, which, four years ago, saw GM paying 1.8 billion euros to acquire a 20 percent stake in Fiat. This clause allows Fiat to force the American firm to purchase the remaining shares in the automotive manufacturing division if the Italian company should so wish.

In the intervening four years Fiat has hit on difficult trading conditions, and GM's stake has since been diluted to just 10 percent. During the first nine months this year Fiat lost 744 million euros at operating level, although senior management are confident that a return to profitability is still firmly on track.

The giant American carmaker has openly disputed the continuing validity of the 'put' option, citing the wave of asset sell-offs carried out over the past couple of years, as well as a huge capital injection, both of which have dramatically changed the overall composition of the Italian industrial conglomerate.

In these difficult circumstances, the option, which was due to begin its exercise period last January, was pushed back to 24th January 2005, with both Fiat and GM agreeing not to purse legal action during the intervening period.

This 'window' now expires next Wednesday, and the Fiat Group's new, CEO Sergio Marchionne, has made it clear that there will be no continuation of this standstill agreement and that the company intends to vigorously purse and resolve the validity issue.

A week today, Marchionne will meet GM Chairman and Chief Executive, Rick Wagoner, when the GM-Fiat Powertrain joint venture concern holds its next regular quarterly steering meeting in Zurich, Switzerland.

These are two tough-talking executives, and fireworks are to be expected. Marchionne arrived at Fiat earlier this year with a big reputation for getting the job done, and has since then imposed his ideas onto the company, and swept aside senior managers that he does not feel have the future of the company at heart.
 

While it is widely reckoned that Fiat have no intention of forcing GM to purchase the loss-making auto division, rather that they are seeking financial recompense for the dissolution of the option, Marchionne, along with new Group Chairman, Luca di Montezemolo, has been noticeably less committed in public to retain this arm than previous top management ever were.

Resolving this issue will then leave Fiat open to pursue joint ventures with other car manufacturers. Rumours abound that they have already been talking to Peugeot-Citroen with whom they have a long-running and highly successful light commercial vehicle venture.

At the same time GM are believed to be keen to seek a resolution of the 'put' option as they have no interest acquiring Fiat's carmaking operation, and are in fact totally focused on turning around their own direly performing European arm, Adam Opel AG.

Production resumes at Termini Imerese

Meanwhile the 1,400 workers at the Termini Imerese plant in Palermo returned to work yesterday after a three week lay-off. However production will only now resume for two weeks as plant will once again shut down on 20th December, before re-opening again on 9th January 2005.

Two years ago the plant was temporarily closed down over the Christmas period, at a time when Fiat's crisis was at its worst and it was widely expected that the factory would shut for good. The Sicilian plant, which builds the best-selling Punto, was saved after intense pressure from the Italian government, but now once again, its long-term future would seem to once more be open to question, although recent talk has centered around shifting production of the Lancia Ypsilon there.