ONE of the biggest developments in the global car manufacturing industry is being considered in Majorca by the chief executive of General Motors, Rick Wagoner, here on the island for test-drive trip. It appears General Motors may be forced into buying Italian car manufacturer Fiat. Rick Wagoner said said that Fiat could still exercise a put option to force General Motors Corp GM.N to buy loss-making Fiat Auto even if a planned Fiat share issue dilutes GM's stake below 20 percent. Fiat holds a put option that requires GM to buy its 80 percent stake in the carmaker from 2004. There has been talk that GM could annul the put by not contributing to Fiat's planned capital increase and thus diluting its 20 percent stake. Last week, Fiat approved a recapitalisation of up to five billion euros ($5.5 billion) for Fiat Auto and said it would stump up three billion euros immediately by cancelling intercompany loans. GM has still not decided to take part. The U.S. company has financial headaches of its own and earlier this week said it was looking at selling the commercial mortgage arm of its finance unit. Asked if a recapitalisation would dilute GM's Fiat Auto stake, GM Chief Executive Wagoner said yesterday: “All else being equal, it normally would - you just have to do the maths”. Asked if the dilution would nullify the put option, Wagoner replied “No”. By mid-afternoon yesterday, Fiat shares had lost 5.1 percent to 6.20 euros, hitting a new 18–year low for the fourth day running as funds turned their backs on the stock in absence of a deal with GM. European auto stocks were down 2.5 percent.

On Thursday, Wagoner met Fiat's new chairman, Umberto Agnelli, at the opening of the Geneva motor show, but said the meeting had focused on cost-savings generated by two joint ventures in parts purchasing and building powertrains and had not broken the recapitalisation stalemate. “There have been a zillion ideas tossed out, and none of them have worked jointly,” Wagoner said on the Majorca test drive trip yesterday. “What we have to do is jointly to come up with something that both of us think is better than the current set-up, and if we don't, we just keep going with what we've got. There have been different ideas but I don't know if something is going to come out or not,” he added. Wagoner said Fiat's attitude towards the recapitalisation seemed to have changed after the group's debt was downgraded to “junk” status by two rating agencies this week and the Italian auto company changed top management last week. On Thursday, Agnelli told reporters in Geneva that he did not think Fiat would exercise the put in the near term and hoped never to exercise it at all - versus last year when he openly entertained the idea of selling out. “I'll take it at face value from Umberto's comments yesterday that they're going to stay in the (car) business longer term, and they've never told us that they didn't have that intention (to stay),” Wagoner said.


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