"Fiat Is In Deep, Deep Trouble"

When General Motors Corp. (GM ) Chief Executive G. Richard "Rick" Wagoner Jr. and Fiat (FIA ) group CEO Sergio Marchionne sit down on Dec. 14 to dine after meeting at GM's regional headquarters in Zurich, the question of industrial marriage or divorce will hang in the air. Marchionne insists he still may wield the disputed put option inked by Wagoner and late Fiat Chairman Gianni Agnelli in 2000, a put that would force GM to buy out the loss-making Italian auto maker. General Motors argues that a subsequent recapitalization and asset sell-off at Fiat have invalidated the put. Now the one-year legal truce agreed to by GM and Fiat to find a solution has just lapsed. That means Marchionne could seek to force a union as of Jan. 24, 2005. "He is considering all options," says one Milan investment banker close to the company.

Being forced to buy Fiat Auto is the nightmare scenario for GM. Four years ago, GM and Fiat had just inked a joint venture, and the companies had acquired stakes in each other. As part of the agreement, Fiat group -- which has other businesses besides cars -- got the right to ask GM in the future to buy out the rest of the $27 billion Italian auto company. Agnelli saw the put as insurance in case he could not turn around his beloved auto business. GM, eyeing the 30% share Fiat commanded in Italy, agreed to the put to make sure DaimlerChrysler (DCX ) and Ford Motor Co. (F ) would not snap up its Italian partner.