Chrysler 1999 Annual Report Download - page 11

9
Report on Operations – Overview
THE FIAT – GENERAL MOTORS ALLIANCE
On March 13, 2000, our determination to help each Group
Sector achieve a position of leadership and competitive
excellence on a global plane produced an important new
agreement. On this date, Fiat and General Motors announced
a strategic industrial alliance involving their automotive
operations in two of the world’s largest markets: Europe
and South America. In a nutshell, the salient points of the
agreement are:
❚Fiat Auto and General Motors will leverage their purchasing
and powertrain capabilities to create two 50-50 joint
ventures that will provide significant opportunities for
synergy and achieve positions of competitive excellence
with respect to production costs.
❚To maximize the available synergies, both companies will
work jointly to achieve a gradual convergence of common
product platforms.
❚The cooperation between Fiat Auto and General Motors will
be extended to include the back office operations of their
respective financial services companies and joint programs
in the area of advanced research.
❚General Motors will acquire a 20% stake in Fiat Auto in
exchange for the acquisition by Fiat S.p.A. of about 5.1% of
GM’s capital stock, valued at US$2.4 billion. This translates
into a value of US$12 billion for all of Fiat Auto. Following
this transaction, Fiat S.p.A. will be the biggest corporate
stockholder of General Motors, the leading carmaker in the
world.
The synergies that programs already identified are expected
to produce will amount to two billion euros by 2005, half of
which will benefit Fiat Auto directly. This will significantly
improve its cost leadership status and speed up the
achievement of its value creation goals. The synergies will
have a direct impact on the most significant components of
the Sector’s industrial costs: powertrain and purchasing
represent about 80% of all production costs. If Fiat Auto’s and
General Motors’ market shares in Europe and South America
are combined, these costs can be spread over more than 5.5
million cars, more than twice Fiat Auto’s current volume.
This agreement between Fiat Auto and General Motors
creates a unique business model in the global automobile
industry: Two great independent companies will continue to
compete for sales and customer loyalty, while they are allied in
an effort to optimize their costs and other industrial activities.
This will enable Fiat Auto to focus its management skills on
those areas that are crucial for its future competitiveness:
brand management, distribution and customer service.
Among the different potential agreements that were available
to us, we chose the option that best strengthens our position
in the automobile industry. We are convinced that this
decision will enable us to increase the competitiveness and
financial strength of our Company, thereby creating more value
than would have been created by any other choice, including
an outright sale of our automotive operations. Nevertheless,
in order to best protect the interests of our stockholders, we
insisted on terms that in the future will enable us to retain total
flexibility and absolute control of our destiny.
The great industrial traditions, technological excellence and
marketing strength of both partners and the innovative terms of
the agreement give historic significance to this transaction, which
represents a fitting conclusion for the first century of Fiat’s history.
We are convinced that it will increase significantly the strength of
our Group, while enhancing its growth potential and contributing
to the development of the industrial and economic system in
Italy and in all the countries where the Group operates.
Turin, April 7, 2000
Paolo Fresco
Chairman
Paolo Cantarella
Chief Executive Officer