Fiat Works To Become The Next GM (GM)

When GM (GM) was by far the largest car company in the world at the beginning of the decade it had vast operations in the US, Europe, Asia, and Latin America. The bulk of its sales, and profits, during that time came from its domestic business and its significant market share in Europe.

GM’s presense in the US and Europe and its reliance on business from those regions is coming back to haunt it as the sales of vehicles moves down 20% to 30% in those parts of the world. That should be a caution to other car companies, but Fiat is ready to ignore the lesson.

Now that the Italian company has set a deal to take management control of Chrysler and get an equity share of as much as 35% in the American company, it will have the opportunity to be one of the largest marketers of cars in the US. It plans to supplement that, if it can, by taking a large stake in Opel, the GM operating unit in Germany.  That will overextend Fiat management and put it in a position to suffer a fate similar to GM’s if the global sales of cars do not recover for several years.

Fiat plans to spin off its car business and combine it with Chrysler and part of GM Europe to create a new public company. If the new entity had substantial sales in Latin America and Asia, especially China and Japan, the idea would be brilliant. Fiat will only have a large presence in the older, more mature vehicle markets as it stands now. Its hedge in the largest growing markets in other parts of the world will barely exist.

There are rumors that Fiat may try to get hold of the GM businesses in China and Latin America, a sign that the Italian company knows its Achilles heel. GM is not going to part with those assets, which are among the most valuable its has. Any capital infusion into the No.1 American car company by the US government will allow it to protect its businesses in those regions, which are, after all, critical to its future.

Fiat can see the weakness of its plans before it even completes them.

Douglas A. McIntrye