Deadline nears for Fiat-GM deal

Fiat and General Motors (GM) have until midnight on 1 February to settle a disagreement over a potential takeover.

The deadline marks the point at which Fiat will gain the right to sell its car division to GM, part of an alliance agreed in 2000. GM, whose own European operations are losing money, no longer wants to own the unprofitable Fiat unit. Reports of deadlocked talks sent Fiat shares down 1.2% on Tuesday, after Monday's 4% gain on hopes of a payoff. The US firm is thought to be offering about $2bn (£1.06bn) to extricate itself from the arrangement. It has argued the deal was voided by Fiat's decision to sell off Fiat's finance arm and halve GM's stake via a capital-raising effort.

The 2000 deal resulted from a race between GM and DaimlerChrysler to ally with Fiat. The German firm wanted to buy Fiat outright. But Gianni Agnelli, the godfather of the group, wanted to keep control, and preferred GM's offer to buy a 20% stake and give Fiat the right to sell in the future, known as a "put option". Since then, however, Fiat cars have lost market share and the firm has piled up losses, while a plan to raise new money in 2003 cut GM's stake in half to 10%. For its part, GM's European units Opel and Saab have both had trouble, with Opel management threatening to cut 12,000 jobs. "The last thing they need is additional production capacity in Europe," said Patrick Juchemich, auto analyst at Sal Oppenheim Bank.
