GM pays $2 billion to end auto alliance, win diesel designs

Monday, Feb. 14, 2005 | 9:23 a.m.

General Motors Corp.'s $2 billion payment to Fiat SpA, ending a disputed alliance, gives the carmaker diesel engine designs for its European restructuring without being forced to buy a money-losing Italian auto unit.

The agreement reached two days ago cancels ventures formed in 2000, requires GM to surrender a 10 percent stake in Fiat Auto and lets the Detroit-based company acquire diesel engine assets, the companies said in a statement Saturday. The companies had disagreed on terms of the 2000 agreement for more than a year.

"They just did not want to have to deal with any uncertainty with respect to Fiat," said David Cole, chairman for Ann Arbor, Mich.-based Center for Automotive Research.

General Motors, the world's largest automaker, needed to end disputes with Fiat to focus on Europe, where the company plans to eliminate 12,000 jobs after losing more than $3 billion in the last four years, Chief Executive Rick Wagoner said yesterday. GM also faces rising health care costs and U.S. competition from Toyota Motor Corp. and other Asian automakers.

"Our only focus is looking forward," Wagoner, 52, said in a conference call Saturday with reporters.

General Motors will take an after-tax charge of $840 million, or $1.49 a share, to cancel the agreement. GM hasn't decided when to record the cost, spokesman Jerry Dubrowksi said.

Standard & Poor's reaffirmed GM's rating on $291 billion in debt at BBB-, or one step above non-investment grade, saying the agreement eliminated uncertainty about the Fiat agreement.

"We view it as basically a neutral development for GM's rating," S&P analyst Scott Sprinzen said yesterday in a telephone interview. "We believe GM has the cash on hand to accommodate the cash payment."