Alfa to GM?

["Paul Begemann" <pbegem@domain.elided>]

This was clipped from the Automotive News Web Site (make your own
interpretations/comments, as I am sure you will!!):

Struggling Fiat Auto cleans house
Reorganization appears to position Alfa Romeo for sale

By Luca Ciferri
Automotive News / December 17, 2001

TURIN, Italy - General Motors may end up owning Alfa Romeo and tightening
its alliance with Fiat Auto S.p.A as a result of a reorganization by the
Italian automaker.

The floundering automaker named Giancarlo Boschetti, the 62-year-old head of
Fiat Group's Iveco heavy-truck and bus subsidiary, to replace Roberto
Testore, who has run Fiat Auto since February 1996.

Testore, 49, resigned Dec. 10 to accept responsibility for Fiat Auto's poor
financial performance.

From 1998 through 2000, Fiat Auto reported a combined $1.22 billion in net
losses. Although Testore had promised a $135 million to $181 million
operating profit this year and a symbolic net profit, Fiat internal
documents published in Italy last week say Fiat Auto will lose $436 million
at the operating level this year.

'Fiat needed new driver'

But Testore also disagreed with Fiat's reorganization into four separate
business units - and gave it as a reason for resigning.

"I've been driving a different Fiat Auto. This new Fiat Auto needed a new
driver, and I think that Boschetti has the right experience as he
successfully realized a similar transformation at Iveco," said Testore in an
interview with the Fiat-owned newspaper La Stampa.

Under the reorganization, Fiat Auto will act as a holding company for four
subsidiaries with staff, financial control and coordination functions.

It also will continue to oversee the strategic alliance with General Motors
and joint ventures with PSA/Peugeot-Citroen for minivans and light
commercial vehicles.

Each unit will be "fully responsible for its individual economic and
financial performance, including separate product development, production,
marketing and commercial organizations," Fiat said.

By making Alfa one of the four standalone business units, the reorganization
positions it for sale to GM, which has high hopes for reintroducing the
sporty brand into the United States in 2005. GM will sell Alfa cars through
one of its distribution channels - most likely Cadillac or Saab.

The sale of Alfa would yield several billion dollars for Fiat, allowing it
to reduce its estimated $7 billion debt. At the same time, the stated wish
of Fiat patriarch Giovanni Agnelli to remain in the car business would be
fulfilled by keeping Fiat, Lancia, Ferrari and Maserati.

Strengthening GM ties

Fiat said the reorganization will tighten its strategic alliance with GM,
even though it will issue $2.2 billion in five-year bonds convertible into
GM shares - a guarantee that accounts for its entire 6.1 percent stake in
the U.S. automaker. But GM said it was "comfortable" with Fiat's plans.

"We back the Fiat group restructuring plan because it is in our interest to
have a strong partner on both the financial and business side," said GM
spokeswoman Toni Simonetti.

Angry dealers, suppliers

Meanwhile, sources say, a revolt by angry dealers and suppliers fueled last
week's surprise upheaval.

Suppliers say they cannot afford the annual 5 percent price reduction
demanded by Fiat as it cuts production.

"The reductions have become unsustainable while volumes decrease," said a
supplier source. Fiat has cut 100,000 units from its fourth-quarter
production schedule, about 20 percent of what was planned.

Dealers are angry because they say Fiat's brand enhancement program is being
undermined at the close of each month by "self-registrations."

One Fiat retailer said dealers across Europe are pushed to register
thousands of new cars to artificially meet market-share targets decided in
Turin. The cars then must be sold at the beginning of the following month as
zero-mileage used cars with discounts of 15 percent to 30 percent.

The final blow may have been signs that the new Stilo subcompact - on which
Fiat is counting heavily - is missing sales targets.

Testore promised that the Stilo, which replaced the slow-selling Bravo and
Brava in early October, would lead a volume and profits turnaround.

But in Italy at least, the Stilo launch seems to be troubled. Three months
after bringing it to market, Fiat put sales incentives on it on Dec. 3.

-------
 Final four (from Fiat's reorganization):

Fiat Auto's 4 new business units and their assets
1. Fiat/Lancia and commercial vehicles. 4 plants in Italy, 2 in Poland.
2. Alfa Romeo. 1 plant in Italy.
3. International Development. Fully owned subsidiaries in Argentina, Brazil
and India, plus manufacturing joint ventures in China, South Africa and
Turkey.
4. Services. Combines service company Targa.sys with SAVA, Fiat Auto's
financing unit.

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