Fiat In Talks With GM, German Government On Possible Merger With Opel

The best time to pick up a bargain is during a sale. Right now, that idea would seem to be on Fiat's mind as it sets out to become one of the world's giant automakers.

Fiat, fresh from securing a slice of Chrysler in what must be one of the greatest deals of the moment (it gets an automaker propped up by billions of US tax-payer dollars plus the bonus of 'having to supply' platforms and engines to be marketed under the Chrysler brand... no downside in those extra volumes there), is now turning its attention to General Motors’ European operations.

With GM entertaining offers for its Opel brand, Fiat has raised its hand again. What especially interests Fiat is the prospect of German tax-payer dollars to assist the deal in return for keeping Opel factories open.

Fiat CEO, the remarkable Canadian-Italian, Sergio Marchionne (who dragged Fiat back from the brink five years ago), believes that in order to survive Fiat needs to lift its annual production beyond the two million units it currently produces.

With both Chrysler and Opel on board (and the eventual prospect of also scooping Vauxhall and Saab into the deal),  Fiat would come close to Marchionne’s goal of selling five to six million vehicles per year.

Sergio Marchionne reportedly met with German Government Ministers on Monday to discuss a Fiat bid (a statement is expected any moment). This followed a Fiat Board meeting on Sunday backing a potential merger.

"As part of this process, the Group would evaluate several corporate structures, including the potential spinoff of Fiat Group Automobiles and the subsequent listing of a new company which combines those activities with those of General Motors Europe," a Fiat statement folling the Sunday Biar meeting said.

German magazine WirtschaftsWoche has reported that Fiat had made an earlier offer for the struggling Opel of less than 1 billion euros, which failed to tempt GM.

The strategy for Fiat would appear to be to merge with Opel, then list the combined entity.If Marchionne can pull it off with German Government assistance and without adding to Fiat debt, he will have pulled another rabbit out of the hat.

Opel, while on a very shakey footing in the current crisis engulfing automakers, holds 80 percent of GM Europe's annual sales of $34.4 billion and employs 25,000 in its German factories. For Marchionne, securing Opel on top of its stake in Chrysler will give Fiat the necessary scale and sales footprint across multiple markets to survive the crisis.

In answer to criticism that Fiat may be becoming too large too quickly, Marchionne gave the enigmatic answer:

“Size managed well is good. Size managed for empire-building purposes is nonsense.”

GM is yet to publicly acknowledge Fiat’s interest, however the company released a non-committal statement, neither confirming nor denying: “GM officials routinely discuss issues of mutual interest with other automakers. As a policy, we do not confirm or comment publicly on those private discussions, which in many cases do not lead anywhere.”

Unlike the agreement with Chrysler, which opens up new market opportunities and distribution channels for Fiat and gives Chrysler access to small car platforms, the merger with Opel would see some doubling-up cars and dealer networks. Which would mean job-losses, something European unions will be reluctant to bless.

The eventual aim of course would be to gain economies of scale and reduced production and development costs through the sharing of platforms across the Fiat, Chrysler and Opel ranges. Already the Fiat Croma is built atop Opel’s Vectra platform, while the Opel Corsa is built from a mechanical package co-developed with the Fiat Punto.

This is definitely one worth watching.