Aftermath Of The Alliance

EVENTS AFTER THE ALLIANCE
  * GM obtained a stake of 20 percent in Fiat Auto Holdings BV (Fiat Auto), the auto division of Fiat. In exchange Fiat acquired a 5.1 percent stake in GM.
  * The agreement included a “put option,” which held that Fiat would have the right to sell the remaining 80 percent to GM after four years at a fair market value.
  * Fiat and GM formed two joint ventures, namely GM-Fiat Worldwide Purchasing BV and Fiat-GM Powertrain BV, which included the plan to capitalize on their purchasing activities to gain cost advantages.
  * The automotive financing arms of GM and Fiat, namely GMAC and Fiat Auto Fidis, planned to identify operating synergies and growth opportunities in Europe and Latin America.
  * A day after the deal, GM’s share prices remained unchanged though the company’s investors were not convinced of the deal whereas Fiat’s shares increased by 10%.
  * In mid-2001 the alliance between Fiat and GM started realizing some synergies. For example, GM’s global sourcing approach led to sourcing the same components for the vehicles that were going to be competitors in the automobile market. This global sourcing strategy was extended to all the partners of GM, including Fiat, which in turn led to cost reductions.
  * Fiat’s domestic sales and share prices was affected by the terrorist attacks on the World Trade Center in New York in 200, sales decreased by 18 percent in September 2001 and the share price reduced by 30 percent.
  * In 2001, to compensate for the reduced demand, Fiat planned to decrease production by 10,000 cars. Fiat Auto incurred a loss of $490 million in 2001.
  * During the first quarter of 2002, Fiat Group generated a loss of $498 million and the slump in car sales led to an operating loss of $404 million in Fiat Auto.
  * By mid-2002, Fiat had a huge net debt of $6 billion. Fiat’s decline continued as sales dropped, capacity utilization fell, and high warranty costs. In 2002, both Fiat and GM sought to...