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Fiat CEO plans new car empire

2009-05-05 06:32

Berlin/Milan - The head of Italy's Fiat has outlined an "interesting" plan to create Europe's biggest car maker but will need 5-7 billion euros in financial support from governments, Germany's economy minister said.

Sergio Marchionne met with senior officials in Berlin on Monday to present his ambitious vision of combining Fiat's car business with General Motors' European operations and Chrysler, with whom he sealed a partnership deal last week.

"It is an interesting approach, without question," Economy Minister Karl-Theodor zu Guttenberg told reporters after meeting Marchionne.

He said the German government, which is keen to save jobs at GM's Opel unit ahead of a September election, would look at the details of the plan and also consider other options.

All Opel's final assembly plants in Germany would be safe under Marchionne's plan, said Guttenberg, but an engines and parts factory in Kaiserslautern, in western Germany, may be hit.

Opel employs about 25 000 people in Germany and also has plants in Spain, Belgium and Britain.

Guttenberg said Fiat was not planning on taking on new debt but that it would require some 5-7 billion euros in bridge-financing and was seeking state guarantees from around Europe. Previously, Opel had said it required 3.3 billion euros ($4.37 billion) in state guarantees.

World's second largest group?

German Chancellor Angela Merkel has said she is open to guarantees but has made clear a decision will depend on the feasibility of Opel's plans and on its finding a partner.

If Marchionne's plan is realised, the combined group would be the world's second-biggest automaker with sales of about 6-7 million vehicles a year and 80 billion euros in revenues.

"The auto group spinoff has always been an option prized by the market as it brings out the stand-alone value of the auto business without the built-in discount that comes from a conglomerate like Fiat," said Serge Escude, an analyst with Cassa Lombarda.

Marchionne told the Financial Times that Fiat and Opel would reap synergies of 1 billion euros a year.

He has argued that a carmaker must make more than 5 million vehicles a year to be able to turn a profit and said last year Fiat lacked the scale needed to survive the sector crisis alone.

However, analysts said planned job cuts could be a stumbling block to a deal.

Stumbling blocks

"The big hurdle we can see is social cost," said Michael Tyndall, of Nomura International. "I'm not sure if the Italian or German governments have the appetite for the job losses a merger would entail," he said.

Opel labour leader Klaus Franz also sounded a cautious note.

"We will not be hostile to anyone but we will undertake a very careful risk analysis," he told reporters at Opel's Eisenach plant, adding he wanted to be sure that any partner was interested in a long-term investment.

Guttenberg said GM in Detroit would have to take a view on the proposed deal and he noted the German government was also looking at other options.

Austrian-Canadian car parts maker Magna is interested in Opel and there are other possible investors, possibly including sovereign wealth funds.


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