Field of Study Domeniul: Economics and International Business Economie și Afaceri [606056]

UNIVERSITY OF ORADEA / UNIVERSITATEA DIN ORADEA
FACULTY OF ECONOMIC SCIENCES /
FACULTATEA DE ȘTIINȚE ECONOMICE
Field of Study / Domeniul: Economics and International Business / Economie și Afaceri
Internaționale
Bachelor Study Programme / Programul de studiu:
INTERNATIONAL BUSINESS /
AFACERI INTERNAȚIONALE (ÎN LIMBA ENGLEZĂ)
Type of Studies / Forma de înv ățământ:
Full Time / Învățământ cu frecvență / IF

BACHELOR THESIS/
LUC RARE DE LICENȚĂ

Scientific Coordinator / Coordonator Științific:
Lect. univ .dr. Andreea -Florina FORA

Graduated Student / Absolvent: [anonimizat]
2018

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CONTENTS ………………………….. ………………………….. ……….. Error! Bookmark not defined.
INTRODUCTION ………………………….. ………………………….. ………………………….. …………. 3
PART I – THEORETICAL APPROACHES ………………………….. ………………………….. …. 5
Chapter I. The International Economic Co -Production ………………………….. ……………. 5
1.1.Co-production in Research & Development ………………………….. ……………………….. 5
1.2.Co-production ………………………….. ………………………….. ………………………….. ………… 7
PART II – CASE STUDY ………………………….. ………………………….. ………………………….. . 13
Chapter I I.THE ECONOMIC COOPERATION BETWEEN FIAT AND GENERAL
MOTORS ………………………….. ………………………….. ………………………….. ……………………. 13
2.1.Introduct ion………………………………………………………………………13
2.2.The structure of th e agreement…………………………………………………..15
2.2.1.Timeline of the agreement …………………………………………………… .15
2.2.2.The legal aspects of the agreement ………………………………………….. 19
2.3.The objectives of the joint venture……………………………………………… 25
2.3.1.Short -term objectives ………………………………………………………… 25
2.3.2.Medium and long -term objectives ……………………………………… …….26
2.4.The alliance……………………………………………………………………… 29
2.5.Reasons for the alliance………………………………………………………… .31
2.6.How it all happened…………………………………………………………….. .32
2.7.Synergy s avings…………………………………………………………………33
2.8.The joint -venture f or purchasing…………………………………………………36
2.9.The joint -venture for powertrain……………………………………………….. .38
2.10.The end of the cooperation…………………………………………………….. 40
2.11.More than a decade later……………………………………………………….. 41
2.11.1.Even less interest …………………………………………………………… 42
CONCLUSIONS AND RECOMMENDATIONS ………………………….. …………………… 44
Bibliography ………………………….. ………………………….. ………………………….. ……………….. 45
A. Books ………………………….. ………………………….. ………………………….. …………………… 45
B. Scientific papers / Articles ………………………….. ………………………….. …………………… 46
Sitography ………………………….. ………………………….. ………………………….. …………………… 47

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INTRODUCTION

When it comes to the development of a product , many companies do not think about
the benefits that a cooperation would bring. Of course, there are disadvantages too, but in
the end a cooperation between two companies would eventually end in having more
advantages , if this is done right and a significa nt amount of planning is done from the
beginning . One of the most obvious factors would be the range of new ideas that would
sprout from this kind of cooperation.
In this age of information and technology we can see the concept co -production in
various se gments. About 50 years ago the big companies started collaboration with each
other in different industries, for examples automotive industry or textile industries. Some of
those were successful and unfortunately other ones proved to be unsuccessful. In mor e recent
years we can see that v arious computer programs, mobile applications and even computer
video games are the result of a co -production between two, or more companies. Many times,
co-production in this segment proved to be beneficial to the companies who participated in
this activity and eventually to the end user. One other benefit of the co -production would be
the starting budget for the development of a product that would be produced through this
kind of cooperation, we can anticipate in a way the overall quality of the end product, the
expectations of this would be higher than a product developed by a single company. When
it comes to competitors that are developing a similar product, but without cooperating with
other companies, the product that is produced as a result of a cooperation would be
completed faster and may prove to be of a higher quality.
I chose this subject because I saw potential in it and I saw it as something that would
naturally be more preponderant in the future and not many peop le have chosen this subject
to talk about .
In the first chapter we can find out about the theoretical approach regarding a
cooperation between two companies and what this takes in order to be completed. We can
see how much time and effort this takes and ho w much planning we have to do beforehand.
In the first stages, the research process is a very important one, and we can see different
contracts that have to be considered before entering the manufacturing stage. There are also

4

various legal aspects that yo u can find below and these all have to be discussed thoroughly
in order for the cooperation to have as much potential as possible.
In the second chapter we will discuss about the cooperation between two giant
automotive companies: General Motors and Fiat A uto. Although this cooperation was seen
with high potential and it was given a lot of praise and encouragement, in the end it was an
unsuccessful one despite the time and effort that was put in the planning and research stage.
There are also various extern al factors that can influence the potential of the cooperation. In
this case, there were many events that took place in the beginning stages of the cooperation,
the biggest one would be the unfortunate 9/11 event that also caused massive changes in the
world economy, especially in the US economy, which ultimately is not only the home of the
biggest company in automotive industry but it is also the home of one of the two partners
that are discussed in this study case: General Motors.

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CHAPTER 1.
THE INTERNATIONAL ECONOMIC CO -PRODUCTION

Firstly, we have to understand the concept of co operation by analyzing some pivotal
characteristics about it and define what it is and what is not. By starting with this, we can
understand and avoid having misconception and misunderstandings about the concept of co –
operation.
The concept of co operation is not a process that would enact as a competition between
the participating entities, in the contrary, it is actually a mutual agreement via which the
participating partners would achieve a final result that is of equal interest between them. The
concept of co -operation represents a group of partners that work together for a common
objective in conditions that would allow f or maximum efficiency. The process of co –
production is proved to be very important in international economy, as we know that no
country in today’s world, no matter of its level of economic development or technological
development cannot evolve without the cooperation with other external partners.

1.1. Co-production in Research & Development

In today’s age at the level of international economy we are facing a big scientific and
technical revolution which grants new features that would prove to help in ma ny ways the
research and development. This innovation is pivotal to economical development resulting
ultimately in the growth of international economic relationships1.
The main objectives that are important in this domain are: the diversification process
of the production and the export, the escalation of the resource valuing, the introduction of
new technologies and the limiting of the raw materials consumption, the increase of
productivity and the cutback of costs, the research of high level complexity re search, the

1 Lazoc, Roman ; Bugnar, Nicoleta – Relatii economice internationale , Editura Universității din Oradea , 2005,
p. 245

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access of top tier technologies, the development of national research system, the
optimization of transport process etc.

There are two kinds of research co -production:
 projects and joint research institutions
 information exchange and expert as sistance

Projects and joint research institutions

Joint research programs
These are relationships between partners from different countries that co -operate for
the process of research and development for a certain field or a certain objective and for a
certain amount of time. These projects can be completed by specialized units with a similar
or different background or via research units and production companies. Research and
development projects can be concluded via the following course of actions:
 research processes done on various phases of the project, the variance
contributions of the partners would be liquidated in currency.
 Joint research processes, done on different ways

The main advantages that this program offers are2:
 The low cost of resea rch and development
 The time needed for the investments to be achieved is short
 The effects of moral wear are low
 The fulfillment of high level complexity research processes that need the merger of
various efforts
 The acquirement of technico scientific information in relatively short time
 The reduction of costs for the gathering of useful information
 The improvement of the research and development depending on the market
absorption capacity

2 Lazoc, Roman ; Bugnar, Nicoleta – Relatii economice internationale , Editura Universității din Oradea , 2005,
p. 246

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The joint research and development programs come in three form s:

Technical scientific contract : the entrepreneur performs requested research
processes for the requester. The impetus is given by the requester that launches the offer
demand due to various needs that he/she has and to lack of liquidities that are need ed for a
proper research process

Joint research processes : both partners have an active role, one of them being the
inventor and the other one has all the necessary resources for the development and the
function of the invention. This form has its own di sadvantages, these can include the
agreement for the place and role of each partner, the way the costs are allocated and the
regulation of the individual property right.

Technical scientific agreements : based on the contract between the partners that
have a big research potential that are requested from third parties. The disadvantages of this
form includes the safe legislative regulations, the cooperation partners’ ranks that should be
equally sensitive and the complete liberty to sign in or to get out o f an agreement.

The foundation of this business is the agreement in which one can find the rights and
obligations of the cooperating partners. The problems that arise in the process of contractions
are due to the nature of the scientific creation. Because of this, there i s no solid guarantee
that the true objective will be achieved and the obligations of the parties can not be accurately
measured or determined (the parties will do everything in their capability to achieve the true
objective). With all these limitation, the re arises the need for a complementary review and a
permanent information exchange, this way the results division will be made based on the
contribution of each party for the objective achievement.

1.2 Industrial cooperation

The industrial cooperation is one of the most advanced cooperation types between
companies or members that benefit from the complementary production potential and a high

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level of expertise. The main types of industrial cooperation are: co -production, sub –
production and on -demand production.

Co-production
The co -production is one of the most advanced types of industrial cooperation
between companies that benefit from a high level of complementary production potential
and a high level of expertise. Practica lly, the co -production can be accomplished3:

a) Between equal partners, in separated companies
b) Mixed type societies

a) Co-production in separated companies : is the most widespread form, the one that
presumes the relative equality of partners positions and their contributions. Organic co –
production and the joint production program represent the main forms of practice.

Organic co -production : a form that implies two companies from different countries
that produce components independently that are not yet ass embled and these parts are
delivered reciprocally in order to achieve the final product (it can be movable or immovable).
If the product is movable, this will be produced in any of the partner’s countries or in a
country that acts as a third party and if t he product is immovable this can be produced in its
own location. The most important part of a co -production document is the co -production
agreement. This agreement consists of: the responsibility of each partner for the technical
procedures and the knowle dge used, the product marketing regulation resulted via each
network, through a mutual network or a mutual brand.

Common production program – it’s done via the agreement upon the sharing of the
products range, each cooperative doing a specific nomenclature; the most important thing in
this program is the inside branch type division. This way, the technology and the knowledge
can belong to eac h cooperative, they can be delivered by one of them, or they can be the
result of a mutual research.

3 Lazoc, Roman ; Bugnar, Nicoleta – Relatii economice internationale , Editura Universității din Oradea , 2005,
p. 248

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The organic co -production can be combined with the common production program,
the result is the common program agreement which will consist in4:
 The quantity of the goods
 The mutual deliveries graph
 The reception and the conditions of the delivery
 The sale of the products under an own brand or a mutual one

We can also list here some advantages when we talk about the c o-production in
separated compani es:
 The superior quality of the products, each partner will produce those components or
final products for which they will hold a comparative advantage
 Overcoming some difficulties regarding the increase of the production and the
complexity of the products
 The autonomy of the partners is not affected
 For the cooperatives that have non-convertible currency , there are advantages of
getting share value

There are also some disadvantages when it co mes to this type of cooperation:
 The synchronization of the del iveries; if this is not done properly, then there may
arise certain difficulties for the partners, the production and the marketing of the
products can be affected to a certain degree
 The international flow, the technology and documents transfer is diminis hed; each
partner is specialized for the research and development of certain important parts of
the final product (sometimes the partners agree on keeping secrets from one another
for certain advantages)

4 Lazoc, Roman ; Bugnar, Nicoleta – Relatii economice internationale , Editura Universității din Oradea , 2005,
p. 249

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b) Co-production in mixed type societies
The mixed aspect of the co -production can be seen from the angle of the participants
(local companies and foreign companies) and from the of participating private companies
and state -owned companies. Mixed companies stand out from the trans -national ones
through organization (there is no subordinate relation s), objectives (they are only of
economic nature and not strategical, or of another nature), relations between cooperatives
and through the way of formation and running. The distinctive elements consist of: free of
consent at their formation, money and work contribution, compliance with the legislation of
the country where the headquarters are and the agreement that regulates the ratio between
cooperatives. When it comes to the cooperation, t he formation of the mixed companies has
a specific mechanism, based on different features unique to each country, but also based on
common elements like5:

 Technology transfer
 New resources access
 New markets entrance
This technique can offer answers to many questions that are related to:
 Market relationship that requires certain studies related to:
o Partner
o Knowledge of price evolution
o Status of the competitors
o Political and economic system of the partners’ country
o Other data related to market
 The partner’s status that requires the gathering of very precise data based on various
direct and indirect sources of information starting from :
o the legal status,
o the relationship with other partners
o technic and technological level that they own
o Management and leadership system
o Company’s extern relationships

5 Lazoc, Roman ; Bugnar, Nicoleta – Relatii economice internationale , Editura Universității din Oradea , 2005,
p. 250

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 There are also some risks related to this technique, these can be of commercial
nature:
o Prices
o Production costs
o Administrative or currency related
o Failure to respect certain commitments
o Insolvency
 Non-commercial risks are related to natural or socio -political aspects
 Partner’s country’s legislation that is of a great interest for mixed societies with their
headquarters situated in foreign countries

Put Option

“A put option is an option contract giving the owner the righ t, but not the obligation,
to sell a specified amount of an underlying security at a specified price within a specified
time frame. This is the opposite of a call option, which gives the holder the right to buy an
underlying security at a specified price, before the option expires.”6

Because of that the put option is seen as something negative. When a co -production
agreement starts with a “put option” this is seen as something negative regarding the future
of the collaboration. The term “put” literally me ans that the owner rightfully can “put up for
sale” the stock or the index.

Put options can be very helpful, they are used in the stock market, their objective is
to protect in the case of the price decline of a stock below the specified price. If this price
decline of the stock happens the owner/buyer has the right, but not the obligation, of selling
the asset at the specified price and the seller of the put is obliged to acquire the asset at the

6 Citation taken from: https://www.investopedia.com/terms/p/putoption.asp – pagina de internet consultata
la data de 13 Mai 2018

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strike price if the buyer/owner uses the right to do so (the term used in this case is exercise
the put or put option ). In this scenario the owner/ buyer of the put will receive at least the
price specified even is the asset is worthless.

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CHAPTER 2.
THE ECONOMIC COOPERATION BETWEEN FIAT AND
GENERAL MOTORS

2.1 Introduction
General Motors and Fiat formed a strategic industrial alliance, creating an important
partnership in two of the world's major automotive markets: Europe and Latin Am erica. The
alliance allowed for significant opportunities to create value for shareholders of both Fiat
and GM, thanks to important synergies in the reduction of material costs, in the improvement
of the motor activities of each group, in the efficiency of transactions related to financial
services, in the technology exchange, in the use of common platforms, as well as in other
areas currently unde r consideration.
The synergies that the two companies have calculated would bring annual benefits
of $ 1.2 billion from the third year, which could increase up to 2 billion annually from the
fifth year, when the common components would be used. A very imp ortant fact: General
Motors and Fiat will remain independent and will continue to be competitors in world
markets. GM will subscribe a 20 percent stake in Fiat Auto, in exchange for GM shares for
a share of about 5.1 percent of the capitalization of the Am erican company equivalent to a
value of 2.4 billion dollars.7
Fiat is an Italian automobile manufacturer that was founded in 1899 Turin,
Piedmont, Italy by Giovanni Agnelli . Since its founding, Fiat has become and still is the
largest automobile manufacturer in Europe, and the third largest one on a global scale, after
GM and Ford.

7 http://www.fiatpress.com/press/article/fiat -e-general -motors -annunciano -un-alleanza -industriale –
strategica -e-uno-scambio -di-partecipazioni -azionarie – pagina de internet consultata la data de 22 Iulie
2018

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Here are some interesting facts about Fiat8:
 During their existence Fiat bought many companies by acquiring shares from
companies such as: Ferrari, Chrysler, Lancia, Maserati, Alfa Romeo
 For Brazil Fiat is the market leader in the automobile industry, Italy produces the
most Fiat cars and Brazil is on the second place in manufacturing Fiat cars
 Since their founding Fiat has manufactured railway engines, carriages, tractors,
aircrafts and military vehicles
 Fiat’s own aircraft, G.55 was used extensively in the Second World War
 In 2012 Fiat was owning 60% in stakes in Chrysler and they continue to have a good
business relationship
 In 2008 the Fiat model Fiat 500 won 2008 European Car of the Year award , but this
one wasn’t their first win, in 1967 they won the same award with their model, Fiat
124
 Tata Motors formed a joint venture with Fiat in 1997 in India and it’s named Fiat
India Automobiles Private Limited
 In 2010 alone Fiat produced approximately 1.455. 650 cars
General Motors is a multinational American company that is headquartered in
Detroit. It was founded by William C. Durant in 1908 as a holding company. General Motors
was the largest automobile manufacturer in the world, from 1931 to 2007. In 2008 alone GM
sold over 8.35 million cars under various brands and in 2016 they reached the milestone of
selling over 10 million cars.
Here are some interesting facts about GM9:
 William C. Durant, the founder of the co mpany was actually a carriage maker
 A few years after he found GM he bought Buick, Oldsmobile , Cadillac and Pontiac
and just two years after this he lost control of the company. He regained it back a few
years later

8 http://www.10 -facts -about.com/Fiat/id/1088 , pagina de internet consultata la data de 14 Mai 2018
9https://www.neatorama.com/2008/11/24/10 -things -you-didnt -know -about -general -motors/ , pagina de
internet consultata la data de 14 Mai 2018

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 GM has about 610.5 million shares outstanding and it is a publicly traded company.
Institutions hold 91% of GMs stocks. Banks and investments firms own more than
50% of the company.
 The first car to make it out in space was designed by GM and Boeing. GM also built
its mobility system and t he car was used during Apollo 15 mission with great success
 During their existence, GM has made several innovations in the car industry. Their
innovations include:
– First V -8 Engine
– First room air conditioner,
– First barrier impact and rollover te sts
– First concept car
– First automatic transmission
– First company to standardize the turn signals
– First ever company to make $1 billion in one year alone
– First ABS system
– First Electronic Fuel Injection

2.2 The structure of the agreement
2.2.1 Timeline of the agreement
A big advantage that alliances between two companies that include no mergers or
company acquisition is the speed between the stage of negotiation and the initiatives that are
found on the competitive side10.
The agreement between the two companies, Fiat and GM was made public after
months of private negotiations in 13th of March 2000, but it still wasn’t anything for certain,
it was just in the planning stage. In 24th of July meant the end of various juridical asp ects
that were included in the agreement. At this point, the authorization from the European

10 Arnaldo Camuffo – Partnering in the Global Auto Industry: the Fiat -GM Strategic Alliance, Article in
International J ournal of Automotive Technology and Management, 2002 available at:
https://www.researchgate.net/publication/228708381_Partnering_in_the_Global_Auto_Industry_the_Fiat –
GM_Strategic_Alliance , p. 6

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Union was the most important factor as the two companies wanted to proceed with the
implementation as soon as possible, but they needed to wait for the EU authoriz ation. This
ultimately happened on 16th of August 2000 and the European Commission Release
Reported:
“The Commission took the view that although Fiat and General Motors will
coordinate, on an exclusive basis their activities in the production of powertrains and in the
purchasing of components and parts, the alliance should benefit consumers. The
Commission noted components accounted for a large part of the cost of new cars, so any
savings the two firm make should be passed on to the consumers.”11
The day of 13th of September meant that the Top Executives and the Board of
Directors of the two 50/50 joint companies between Fiat Auto SPA and GM became possible
to name Fiat-GM Powertrain BV with their headquarters situated in Turin and GM -Fiat
Worldwid e Purchasing BV with their headquarters situated in Ruesselsheim that represent
the two joint -venture companies officially started to operate on January 1st of 2001.
These types of joint ventures play a role with considerable respect to manufacturing
costs. The powertrain system was the most expensive part to manufacture; in fact it
represented 80% of the total vehicle manufacturing cost.
Geographically speaking, this alliance was limited to Europe and South America.
One big reason contributing for this was the fact that North America wasn’t representing any
chance of strategic room for this kind of initiatives and GM wasn’t suffering any particular
competitive pressures. On the other hand, South America had a market in which there was a
certain growth po tential, in Europe the competition was very strong, and the cost leadership
was the main objective of the alliance.
The fact that the purchasing costs of the two companies was almost the same, settling
for a 50/50 joint venture to manage purchasing was mu ch easier. In addition to the settlement
of the two joint ventures, there was an agreement of cooperation in financial services that

11 Citation taken from: Arnaldo Camuffo – Partnering in the Global Auto Industry: the Fiat -GM Strategic
Alliance, Article in Inter national Journal of Automotive Technology and Management, 2002 available at:
https://www.researchgate.net/publication/2 28708381_Partnering_in_the_Global_Auto_Industry_the_Fiat –
GM_Strategic_Alliance , p. 6

17

was signed, common initiatives in many other functional areas, like information technology,
R&D, quality, logistics, engine ering etc. Like mentioned before, cost reduction was the most
and the main objective in this cooperation, but this objective is also the most important one
in all the mergers in acquisitions that are taking place in the automobile industry. Thanks to
this objective in mind, the two companies managed to save 2 billion euros. The actual motto
of the agreement was: “ Allies in costs, competitors in the markets”. With regards to this
cooperation Fiat was reporting that it already had positive results by the end of the 2000.
March 13, 2000 . The agreement between Fiat and GM is signed, and it was praised by the
international press as one breakthrough for the European c ar and a mega -alliance. Detroit
buys 20% of Fiat Auto and, in turn, Fiat spa joins 5.15% in the capital of GM, becoming the
first private shareholder of the American company. Lingotto is granted an option right to sell
the remaining 80% to Genera l Motors during the period between 24 January 2004 (moved
later to 2 February 2005) and 23 July 2009 (24 July 2010).12
July 2000 . The agreement becomes operative with the inception of the t wo joint venture
companies: the one for engines and foreign exchange , with an operating district i n Turin,
and purchases based in Germany.
16 July 2002 . GM devalued its stake in Fi at Auto from 2.4 billion to 200 Millions of dollars
21 December 2002 . The Fiat group sold its stake in General Motors to Merrill Lynch for
1.16 billions of dollars.
February 28, 2003 . The f irst moment of breaking point is the € 5 billion in crease in capital
of Fiat Auto.
March 2003 . Standard and Poor's declassify the rating of Fiat. The Turin company sold 51%
of Fidis retail to the four largest cr editor banks (Sanpaolo Imi, Unicredit, Intesa a nd
Capitalia), this latter move which will be questioned by GM for changing the initial
conditions of the agreement.

12 *** – Il caso dell’alleanza fiat -gm – document available at:
http://www00.unibg. it/dati/corsi/87021/51270 -IL%20CASO%20FIAT -GM.pdf , p. 2

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April / May 2003 . GM expresses doubts about the possible put option by stressing that the
contract "could affect subseque nt agreements" between companies. I n Ma y, Agnelli and
Morchio called for a meeting with GM in America to try to convince them .
26 October 2003 . Fiat and GM postpone the exercise of the clause contained in the official
agreeme nt from 2000 . Meanwhile, industrial collaborations remain.
January 12, 2004 . Umberto Agnelli declares, for the first time explici tly, that for Fiat the
put option has a value .
September 21st 2004 . The CEO of Fiat , Sergio Marchionne announces to the Paris salon
that there will be no further postponement on the exercise of the put option .
December 15, 2004 . Fiat and GM announce that no agreement has been reached and that
the Americans they will formally notify the start of mediation.
December 16, 2004 . The A mericans open the mediation, the first step planned from the
master agreement, signed by the Lingotto and Detroit in March 200 0, in case of disputes
over the elements of the agreement.
January 13, 2005 . GM eliminates the value in the financial statements o f the investment in
Fiat Auto Holding – January 24th 2005. The mediation ends, but Fiat and GM decide to
postpone for another week.
February 1, 2005 . The extension of the mediation ends.
February 13, 2005 . The cooperation between Fiat and General Motors ends. Fiat intended
to assert its right to the put option (ie to be purchased by GM, as provide d for in the initial
agreement) and an agreement has been reached. Because of this, GM was seeing a joint
venture that would have been economically unsustainabl e, while Fiat freed themselves of an
alliance that prevented them from planning its own future. The termination of the agreement
was not an easy one : it cost 1.55 billion euros to GM so they had to pay Fiat € 1.55 billion
to put an end to the Master Agreem ent, including the put option. GM has had to give back
to Fiat the 10% stake that it still owned in Fi at Auto. The agreement dissolved all the joint
ventures and provides for the restitution of 10% held by the Americans i n Fiat Auto Holding.
GM will be abl e to continue to use some Fiat diesel technologies and acquire a 50% share

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of the Polish factory of Bielsko Biala, where small -displacement diesel engines are
produced. It will share the ownership of the Jtd engine technology, and will continue to use
engines produced in the Fiat plant in Europe of Pratola Serra. However, it will not be able to
produce the multijet engine to alloc ate it to Europe outside Europe European markets.
2.2.2 The legal aspects of the agreement
The agreement between these two companies involve mainly the manufacturing
areas, but from a commercial perspective the several divisions managed by Fiat and GM
would operate separately in Latin America and in Europe. From the GMs standpoint, the
associate d divisions are Vauxhall, Opel, Chevrolet (for Latin America) and Saab. For Fiat,
the associated divisions are the ones that are controlled by Fiat themselves: Fiat, Lancia and
Alfa Romeo. As a result of the industrial alliance with GM, the year 2000 meant a
reorganization in the company’s structure in the Fiat Automobile Sector. Fiat Auto SpA
(named Fiat Auto Partecipazioni SpA in 2002) has demerged from its operational activities,
that were granted to Fiat Auto Holding s B.V. the new head company. S imultan eously , GM
acquired 20% stakes in Fiat Auto Holdings B.V. and Fiat acquired 6% stakes in General
Motors Corporation. As a result of this acquisitions Fiat has gained considerable budget and
this allowed them to start many initiatives regarding the industri al restructuring and the
strengthening of the capital’s company. These new initiatives were completed in 2001, and
for some of them there had to be provided some non -current costs13.
The equity swap was not made at market values, the basis of the evaluation of the
company branches played a role in this and only the granted branches were considered.
Taking into account the market prices during that time, $12 billion USD was the estimate d
Fiat Auto’s whole equity (~1.5 times net equity). This estimation matches the market
capitalization of the entire Fiat group (Fiat Auto representing about half of sales), before the
rumors of this joint venture even started to appear.

13 Arnaldo Camuffo – Partnering in the Global Auto Industry: the Fiat -GM Strategic Alliance, Article in
International Journal of Automotive Technology and Management, 2002 available at:
https://www.researchgate.net/publication/228708381_Partnering_in_the_Global_Auto_Industry_the_Fiat –
GM_Strategic_Alliance , p. 7

20

As mentioned before, the equity of Fiat -GM Powertrain BV and GM -Fiat Worldwide
Purchasing BV – the two joint ventures is distributed 50/50 between the partners. Moreover,
the two companies have a CEO selected by Fiat Auto and a Chairman selected by GM and
vice versa. A dditionally, the operational headquarters were selected specifically, for the first
joint venture, the operational headquarters was situated at the headquarters of Opel, and for
the second joint venture , in Turin, at the Mirafiori industrial complex (where the
headquarters of mechanical activities were situated in the past), this being the location of
Fiat Auto’s headquarters as well.
This kind of balance accentuates the perfect equality between the two partners. The
scope of the agreement was conceived in such a way that even if we consider the weight of
the economic and the industrial involved, the two collaborators were able to surpass the
illusion of an “acquisition disguised as agreement” of Fiat by GM (see Table 1).

Table 1 : General profile of Fiat A uto and GME/GM Latin America

Fiat Auto Holdings B.V. – 2000 (1) GM Europe and Latin America – 2000 (2)
Employment Unit 74,292 Employment Unit 105,550
Car Production Unit 2,324,900 Car Production Unit 2,273,157
Sales and Revenues (€ Mn) 25,361 Sales and Revenues (€ Mn) 33,596
Operating Income
(Loss) (€ Mn) 44 Operating Income
(Loss) (€ Mn) n.a.
(Our conversion: 1 € = 0.97 $)
Source: Interpretation of: “Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download

21

The joint venture was structured in such a way that, without leaving out the
manufacturing and industrial consideration, a new competitive entity emerged that can be
compared, virtually, to the combination of the activities of Fiat Auto and GM in Latin
America and in Europe. This entity, ranked on the fifth place in the internation al ranking of
vehicle manufacturers, with the production level of about five million units means that the
entity has an international manufacturing potential that offers various opportunities ( see
Tables 2 -6).
It must be noted that the most important consequence of such agreement means that
it contains industrial contents, the cooperation being limited to the so titled “up -stream”
activities, while the “down -stream” activities (the marketing, the distribution, etc.) will
remain thoroughly divided and independent. The only exception being the Alfa Romeo
brand.

22

Table 2 : Fiat Auto and GM assembly plants in Europe

Source: Interpretation of: “Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download Fiat (1) General Motors (2)
Plant Models Plant Models
Arese (Italy) Fiat Seicento Elettra,
Fiat Multipla Ibrida Bochum (Germany) Opel/Vauxall Astra,
Zafire
Cassino (Italy) Fiat Bravo/a (to be
replaced by Stilo),
Fiat Marea Eisenach (Germany) Opel/Vauxall Astra,
Corsa
Melfi (Italy) Lancia Y, Fiat Punto Ruesselsheim
(Germany) Opel/Vauxall Omega,
Vectra, Cadillac
Catera
Termini Imerese
(Italy) Fiat Punto Antwerp (Belgium) Opel/Vauxall Astra
Pomigliano d’ Arco
(Italy) Alfa Romeo 145, 146,
147, 156 +
Sportwagon Zaragoza (Spain) Opel/Vauxall Corsa,
Tigra
Mirafiori (Italy) Fiat Punto/Van,
Panda/Van, Fiat
Marea, Multipla Szentgotthard
(Hungary) Opel/Vauxall Astra
Rivalta (Italy) Lancia k, Lybra, Alfa
Romeo 166 Warsaw (Poland) Opel/Vauxall Vectra
Tichy (Poland) Fiat Seicento/Van Azambuja (Portugal) Opel/Vauxall Corsa
van, Combo
Bielsko -Biala
(Poland) Fiat 126, Uno/Van,
Palio Weekend, Siena,
Punto, Bravo/a (to be
replaced by Stilo) Torbali (Turkey) Opel/Vauxall Vectra
Bursa (Turkey) Fiat Palio/Weekend,
Siena, Doblò, Tipo,
Uno, Bravo/a (to be
replaced by Stilo),
Marea, Ducato Luton (UK) Opel/Vauxall Frontera
Ellesmere Port (UK) Opel/Vauxall Astra
Trolhattan (Sweden) Saab 9 -5, 9-3

23

Table 3 : Fiat’s joint ventures in Europe
Sevel Nord & Sevel South (1)(Fiat 50% – PSA 50%)
Plant Plant
Valencienne (France) Fiat Scudo (van), Ulysse, Lancia Z
Val di Sangro (Italy) Fiat Ducato
Source : Interpretation of: “Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download

Table 4 Fiat Auto & GM models produced by other car manufacturers
Plant Models
Chivasso (Italy), Ownership of Maggiora Fiat Barchetta
Turin (Italy), Ownership of Bertone Fiat Punto Cabriolet
Turin (Italy), Ownership of Bertone Opel (Vauxhall) Astra Cabriolet
Grugliasco (Italy) Ownership of
Pininfarina Alfa Romeo GTV Coupé and Spider
Source: Interpretation of: "Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download

24

Table 5 Fiat Auto and GM assembly plants in South America
Source: Interpretation of: "Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download

Fiat (1) General Motors (2)
Plant Models Plant Models
Cordoba (Argentina) Fiat Siena Rosario (Argentina) Chevrolet Corsa,
Suzuki Vitara
Betim (Brasil) Fiat Bravo/a, Fiorino,
Marea/Weekend,
Palio/Weekend, Siena,
Strada Pick -up,
Uno/Van, Ducato,
Siena Gravatai (Brasil) Chevrolet Corsa Wind
Sao Caetano do Sul
(Brasil) Chevrolet Astra,
Corsa, Vectra
Sao Jose dos campos
(Brasil) Chevrolet Corsa,
Corsa pick up

25

Table 6 Fiat Auto and GM assembly plants in rest of world in partnership with other car
manufacturers

Fiat (1) General Motors (2)
Plant Models Plant Models
Casablanca (Morocco) Fiat Uno, Siena, Palio Halot (India) Opel/Vauxall Astra,
Corsa.
Cairo (Egypt) Fiat Siena Rayong (Thailand) Opel Zafira
Johannesburg (South Africa)* Fiat Uno, Siena, Palio,
Palio Weekend Shangai (China) Buick Sail
Mumbai (India) Fiat Uno, Siena,
Siena/Weekend, Palio
Rst (Autumn 2001) South Africa n.a.
Karachi (Pakistan) Fiat Uno Egypt n.a.
HoChiMinh City (Vietnam)* Fiat Siena
Nanjing (China) Fiat Palio Rst (Autumn
2001)
* = Licenses
Source: Interpretation of: "Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download

2.3 The Objectives of the joint venture
2.3.1 Short -term Objectives
The objectives of this agreement were based on industrial considerations while the
focus was mainly put on cost reduction and the maximum quality of the product. This
objective was achieved in a rather fast time via the centralized reorganization of parts and

26

the activities of component acquisition. As a matter of fact, we can rationalize the
acquisition even further, due to the common design of powertrains that were used in different
models and to a decrease in their number and to the usage of systems and common parts. In
the acquirement of the parts and the materials for the manufactured models, it will be
possible to achieve some savings, due to superior negotiating power with the suppliers (the
volumes were in fact doubled). This aspect cannot be undere stimated, even when analyzing
it from a psychological perspective. As a matter of fact, the incorporation of actions of
different companies always represent a range of obstacles; consequently, one of the most
important things for the agreement is to genera te positive results fast, so that the commitment
between the two partners would be emphasized and the power of the initiative would be
proved as a whole.14
Many obstacles that were faced by many ambitious joint ventures between various
companies were the fact that such big results expectations would require long and careful
processes and integration. It is not uncommon that these obstacles would appear at the
beginning of such integration processes, and as a result the potential of such project as
initiall y defined would be greatly diminished or even ruined completely.
2.3.2 Medium and long -term objectives
Evidently, the long -term objectives were more important and focused on the
competitive side.
An important factor is t he necessity to adjust the commercial and marketing
characteristics of the individual brands , for example, the models that were marketed under
the Pontiac brand would need to contain different contents that those that were marketed
under the Chevrolet brand of General Motors, or to models that were advertised under the
Alfa Romeo and Lancia brand by Fiat Auto. This example also applies to v arious national
markets, which despite the globalization process, they require products specifically
appropriate to local specifici ties. Considering this, the different ratio between the cost of

14 Arnal do Camuffo – Partnering in the Global Auto Industry: the Fiat -GM Strategic Alliance, Article in
International Journal of Automotive Technology and Management, 2002 available at:
https://www.researchgate.net/publication/228708381_Partnering_in_the_Global_Auto_Industry_the_Fiat –
GM_Strategic_Alliance , p. 11

27

vehicles and the cost of labor in countries that the industrialization is at high and in
developing countries , a small car would be generally used as a second car, just for individual
use, in a country in which high -motorization is present. In a country characterized by low –
motorization, this vehicle would have to be configured as a family car, or even a car driven
by a chauffeur.
Alternatively, there is the need to exploit as much as possible , the gauge and the
scope of economies. This can be done via the development of new technologies and the
extended commonality of materials and components. This however, does not affect the
characteristics of the brand in the eye of the consumer.
Automaker s have already tried this type of integration of opposite needs, however,
until now the results were unsatisfactory, especially when the markets featured specific
differences like, for example, the Western European and North American market.
Alternatively, the state of sharing features or attributes of parts appears to be significantly
more suitable for the process of integration, that is if the specific characteristics that are
maintained relate largely to differences between the models of different brands , while being
marketed in the same markets. For instance, Fiat Auto has managed to obtain one of the most
effective cooperative development initiatives in 1984, with Saab and Alfa Romeo (in that
year, Alfa Romeo wasn’t belonging to the Fiat Group). The pro ject was named “Tipo 4”,
which translated to English means “Type 4” and it benefited from the elements of common
design that were attributed to four models with substantial part commonality. This initiative
consisted the “Croma” model for Fiat, the “9000” model for Saab, the “164” model for Alfa
Romeo and the “Thema” model for Lancia . All these 4 models saw commercial success and
the automaker made a lot of profit from the sales of these 4 models.
Such past events were hoped to be helpful to both compani es and inspire them to
study and develop new common parts and system (also known as ‘architectures’). It is
noteworthy that Fiat Auto and General Motors made the confident decision to appoint
integration objectives only to the main divisions and markets in Latin American and Europe.
This limitation would allow the partners individually or jointly to gain experience in case of
more ambitious goals later on.

28

The development of new technologies proved to be pivotal and opened new and
important possibilities in the development of Information & Communication Technology
(ICT) and in the integration of mechanic and electronic technologies that were used in parts.
When talking about the ICT one must know that it eased the co -design activities between
partners that were interested in development of common activities as it accelerated the data
transfer and the testing of various solutions for experimentation. There was also daily
progress on the possibilities of making the behaviors of vehicle systems more adaptive. For
example we can look at the variable phasing of the engine, the gearshifts that can operate
manually, manually -sequentially or automatically and variable suspensions. With this in
mind we can see that the vehicle customization in the technical aspect gr ew considerably
even if the same design framework was used.
At first the two partners considered the usage of common platforms that are meant
for standardization of performance and road handling, but the room for brand
characterization was limited. Upon a nalyzing this decision they realized that this would not
allow them to have the much required flexibility towards brands. As a result they decided to
follow a strategy that is defined as common ‘architectures’. What this means is that the two
partners woul d work on a highly modular underbody that would be capable of width
variation and absorbing length and different rear structures and front -ends, in order to allow
the differentiation on vehicles to fully satisfy the need of brand customization.
This furth er strengthens the definition of common parts due to the fact that they work
on sub -systems and not on very rigid and highly complex systems like the platform itself.
The two partners would work on all vehicle segments, pursuing the possibility of the high est
unification on all architectures while developing specific solutions for the individual brands
that are targeted at obtaining the satisfying performance for each brand, while respecting the
full consistency of the Fiat -GM alliance strategy: the two aut omakers help each other in
covering the costs, but in the marketplace they remain strong competitors.
When choosing the usage of a common architecture the development of a knowledge
base for the more complex components of a vehicle are prioritized and foc used. This also
applies to future products. Such activities encourages the focusing on important advantages
when it comes to costs while achieving excellent technical results. Even in this common

29

architectures one can find many areas of differentiation. Th is encourages of specific systems
and subsystems targeted at achieving various performance levels and increasing the points
of excellence of each brand.

Hard differentiation encourages the usage of:
 Various types of suspensions, the same suspension but t uning it different in some
elements will allow various performance levels
 Various types of transmissions (four wheel drive or front)
 Various sizes in terms of width and length
 Various engine ranges and different pairing with transmissions and gearboxes wil l
allow the guarantee the some cases will have sporty features and other cases will
have comfort features

With this in mind the partners won’t suffer any modifications to their assembly
plants. The economies of scale will be present due to the manufacturing of common systems
and parts in large quantities, which will be one of the main elements by which the synergies
between the two partners will be proved.
2.4 The Alliance
The year of 2000 saw an alliance between two major automobile manufactur ers. GM,
which is the second biggest automobile manufacturer in the world with brands like Buick,
Chevrolet, Cadillac, GMC , Golden, Oldsmobile, Opel/Vauxhall, Pontiac, Saturn, and Saab
and Fiat which is a brand that everyone in Europe can recognize as it’s one of the biggest
automobile manufacturers there15.

15 https://www.eurofound.europa.eu/de/observatories/eurwork/articles/other -business/general -motors -and-
fiat-spa-form -alliance, pagina de internet consultata la data de 01 Mai 2018

30

In the year 1999, GM produced 8,786,000 vehicles, with an annual turnover of ITL
350,000 billion (EUR 181 billion) and it had more than 388,000 employees. GM has 11.5%
of the European automobile market and 12.6% of the world market.
On the other side, Fiat back then was the 6th largest automobile manufacturer on a
global scale with 5% share, on European only scale it was the 7th largest with 9.2% market
share. In that year of 1999 Fiat had a turnover of ITL 93,000 billion (EUR 48 billion) and
produced 2,770,000 vehicles with 221,000 employees. Fiat auto brands included besides
Fiat, Ferrari, Alfa Romeo, Lancia and Maserati.
GM was present on the European market with their Opel/Vauxhall trademark which
was bought by GM in 1929. Their main product was a car that was characterized as being
medium quality and low powered. The German market was representing approximately half
of Opel’s production, their main rival in Germany being of course, Volkswagen. These years
proved to be struggling for Opel too, as they had declining sales in 1998, by 1999 they saw
a bit of recovery and increase, but major job losses were predicted by 2003.
The world competition, economic globalization and the necessary expansion of
markets beyond national and continental borders have forced manufacturers in creating
alliances with other third party companies in order to sustain their profit. When it comes to
streamlining the automobile sector is one of the most targeted of all industri es. Currently the
world demands more than 70 million cars produced yearly and there are more than 85 that
are done so.
In the year of 2000 two automobile manufacturers decided to cooperate in order to
coproduce a car. In the beginning, there were talks about which company would cooperate
with Fiat: German/US Daimler Chrysler or with GM itself, but the latter was chosen
ultimately. The two companies both agree to enter “strategic and industrial alliance” (Fiat
acquires a 5.1% stake in GM and GM acquires a 20% stake in Fiat). In this agreement there
was another option, called “put option” which meant that Fiat would be able to sell the
remaining 80% to GM after 4 years at a fair market value.

31

2.5 Reasons for this alliance
Fiat
One of the reasons that Fia t like this is because their sales were heavily declining,
this trend intensified in the 90s. They were losing a lot of sales in Western Europe and South
America. Because of the declining of sales they were over capacitated almost constantly
during these struggling years.16
In the past Fiat was also interested in cooperating with Volvo and BMW, they
approached GM in 1999, Fiat liking this idea because GM was a giant in the US and they
saw this as an opportunity to grow in that market. On the other hand GM was also
experiencing problems in Europe and South America during that time. In the same year
DaimlerChrysler approached Fiat in order to purchase it entirely, but GM didn’t like this at
all because they saw it as a big threat to their European sales.

GM
These years proved to be pretty struggling for GM as well. Their European brands
(Opel, Saab) were over capacitated almost constantly and their profits went down by
approximately 25.8%.
In GM own words this alliance meant this: “Alliances are sometimes the only option
that available companies will consider. Quite simply, we are not in the business of acquiring
a company we cannot work w ith on a partnership basis, because the auto, because the auto
business is just too hard for us to be fighting our own partners. With an alliance we enter
the relationship that our partner also wants enter the relationship ”.17
“Alliances that everyone, including management talent, stays actively engaged. And
we need good management around the globe, especially in places like Japan, where GM’s

16*** – Fiat and GM: The Troubled Alliance (Lecture 1) – document available at:
http://www.andidas.com/academic/lse/MN404%20 -%20Casestudy%20 -%20Fiat%20and%20GM.doc , p. 1
17 Citation taken from: Arnaldo Camuffo – Partnering in the Glob al Auto Industry: the Fiat -GM Strategic
Alliance, Article in International Journal of Automotive Technology and Management, 2002 available at:
https://www.researchgate.net/publication/228708381_Partnering_in_the_Global_Auto_Industry_the_Fiat –
GM_Strategic_Alliance , p. 4

32

presence has been limited since World War II. We are pleased and enthused to have the
leadership of Fiat Auto, for example, in control of their brand and driving for mutual
synergies just as hard as we are.”
A strategy was used by GM in the past as well in order to see if the companies are
interested in the acquiring the company. This strate gy was used in order to acquire Saab and
Isuzu Motors, but it proved to be pretty unsuccessful because the investors saw less of a gain
from the alliance for GM than for Fiat.
One of the main objectives of this alliance was to achieve cost savings through a
common purchasing strategy (the aim was 2 billion euros by 2005). One other main
objectives was to share the know -how technology of diesel engines.
The auto industry being an oligopolistic one, Fiat wasn’t allowed to enter in another
alliance with anot her manufacturer.

2.6 How it all happened
The start of this alliance proved to be with a lot of bad luck. The 9/11 happened the
next year, in 2001 and this meant that Fiat a big fall in orders. In 2002 they incurred an
operating loss of $404 million and by mid -2002 it had a net debt of $6 billion.18
As a result from this, Fiat was interested in selling its auto arm to GM via the put
option, but GM were un -interested in this, giving the Fiat’s very bad economical situation.
As a consequence Fiat’s decline was continuing, the sales dropped consistently, capacity
was always overridden and the warranty costs were high. Because of these Fiat and GM had
to take desperate measures and they began to lay off many workers and close many factories.
Despite all these measures, GM recorded a very big loss ($9 billion pension fund liability
and $47 billion of healthcare costs).

18 *** – Fiat and GM: The Troubled Alliance (Lecture 1) – document available at:
http://www.andidas.com/academic/lse/MN404%20 -%20Casestudy%20 -%20Fiat%20and%20GM.doc , p. 2

33

2002 recorded that GM’s investment in Fiat dropped from $2.4 billion to only $220
million, which further degraded the GM’s interest of buying Fi at.
In 2002 Fiat has undergone through a recapitalization process. They did this by
selling their GM shares to Merrill Lynch and selling their stake in an energy consortium and
their financing arm.
The economics of car making has played a role into all t hese situations, a professor
from the auto industry economics said: “Eventually, Fiat cannot stay on its own. That has
nothing to do with Fiat but w ith the economies of car making. ” Fiat was in need of 5 billion
euros. Fiat’s parent company has invested 3 billion and the rest of them were turned to GM.
Because of the fact that GM refused this their stake was reduced as a result to 10%.
As a result of this decision some opinions arose that GM would’ve agreed only if
Fiat would’ve saved it from the compulsor y “put option” or offer a significant return for its
investment. Fiat ultimately decided that in order to save their auto division they would have
to stay away from the “put option”. By middle of the year of 2004 Fiat had undergone
through a restructuraliz ation process and they made a small profit as a result of this.
2.7 Synergy Savings
Based on the calculations proposed by the actual partners, the economies resulted
from the integration process were expected to materialize in 2001 and then continue
throughout the year of 2005. The figures were showing an expected saving of 2 billion euro .
This was based on the enabled economies by the convergence plan in transmissions and
engines and then by common architectures. Based on the balance sheets of GME and Fiat
Auto in 2000 (approximately 53 billion euro), this saving would be approximately 3% (if we
consider GM in Latin America as well). It is certainly not a low value and it is actually a
value which represent an automaker “in good health” according to many financial analysts.19

19 Arnaldo Camuffo – Partnering in the Global Auto Industry: the Fiat -GM Strategic Allianc e, Article in
International Journal of Automotive Technology and Management, 2002 available at:
https://www.researchgat e.net/publication/228708381_Partnering_in_the_Global_Auto_Industry_the_Fiat –
GM_Strategic_Alliance , p. 13

34

Figure 1 Synergy savings (euro billion)

Source: Taken from "Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download

It would be interesting to put these numbers into a perspective and for that we can
consider the following. In the year of 2000, the entire automotive division of GM (in which
they produced 8.5 million units) realized a profit of approximately 2.4 billion euro and sales
of approximately 150 billion euro. 2 billion euro represented a considerable amount in total
savings for GME and Fiat Auto and from this resulted strategies for price reductions,
increase of market share and increased profitability overall. As a result of improved
profitability for each partner the money would be spent in quality control programs and the
improvement of weak segments of GME and Fiat Auto.

Considering the break -down of cost economies, the information that was provided
by the two partners focuses on considerable savings resulted from the synergies in
purchasing (according to the calculation of savings the category “Purchasing” doesn’t
include the acquisition of parts and components attributed to the development of

35

“Architecture s” and “Powertrains”), that would materialize in the first stages of the
cooperation. The remaining savings were considered significant, in the biggest part due to
the convergence of transmissions, engines and the sharing of architectures. Just by adding
activities of purchasing to the Powertrain manufacturing it would prove to be considerable
as we would get a figure of approximately 80% of the total manufacturing costs of a vehicle
and the remaining 20% would be attributed to the activities of the final a ssembly of the
product (Figure 1).

Figure 2 Purchasing and powertrain impact on costs

Source: Interpretation of: "Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download

OEM V.A. , 20%
Powertrains , 20%
Purchasing , 60%

36

2.8 The joint -venture for purchasing
When talking about the total manufacturing costs of a vehicle we must know that
purchasing costs represents over 70%. Because of this, the purchasing function has to be
approached strategically as it is a very important aspect. In order to satisfy the needs Fiat
Auto and GM have concluded the purchasing activities by establishing a c ompany named
GM-Fiat Worldwide Purchasing B.V., the headquarters being situated in Russelsheim,
Germany. The company consisted in over 2000 employees and each partner participated in
an equal amount in the company. The company was operating on a worldwide scale and Fiat
Auto was in charge of supplying manufacturing and assembly parts (plants in Egypt,
Morocco, South Africa, China and India) and General Motors was in charge of this in Europe
and Latin America.20

All of these were totaling to an amount approximately of 33 billion euro and 16
billion euro were spent to feed the assembly lines for those attributed to Fiat Auto and 17
billion euro to those of General Motors in Europe and Latin America .

Table 7 Cumulate purchasing turnover (2000)
Source: Interpretation of: "Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download

20 Arnaldo Camuffo – Partnering in the Global Auto Industry: the Fiat -GM Strategic Alliance, Article in
International Journal of Automotive Technology a nd Management, 2002 available at:
https://www.researchgate.net/publication/228708381_Partnering_in_the_Global_Auto_Indu stry_the_Fiat –
GM_Strategic_Alliance , p. 15 Fiat Auto Worldwide GME & Latin
America
Purchasing Worldwide Purchasing
Europe (Bn Euro) 13 14
Latin America (Bn Euro) 3 3
Total (Bn Euro) 33 16 17

37

The adoption of a common purchasing strategy and of a single organizational
structure was looking simple for both partners as they both have established an approach to
international sourcing which has the same philosophy at core. Furthermore, the share of
common suppliers that was featured by the total number of suppliers that were credited from
the beginning by the two industrial groups was equal to 70%. This share was set to grow
bigger, but mostly in terms of share of value of sales that were carried out with the two
partners.

In the later stages f urther developments were expected, but from the development of
a marketplace like the one that was established for component partnering in globa l auto
industry. Through Covisint (a B2B company that through their participation, in addition to
General Motors, included Daimler -Chrysler, Ford, Renault and PSA and that should play an
important role in the global rationalization of procedures in the man agement of purchasing
for automakers and their sup pliers) the Fiat -GM alliance made purchasing activities in the
North American Market. The purchasing strategy of the two groups was managed by GM –
Fiat Worldwide Purchasing B.V. Fiat Auto transferred all of its purchasing activities to them,
while General Motors transferred theirs to Europe and Latin America, so they would have
the maximum level of market comparability to Fiat Auto. In this field of purchasing the
company (GM -Fiat Worldwide Purchasing B.V.) h as been granted exclusive right. With
their headquarters being in Germany, the JV was organized on a regional basis. Their
chairman , Robert Socia, was coming from GM and their CEO, Tommaso Le Pera, was
coming from Fiat Auto. The JV was employing about 2,20 0 people, 1,400 of them came
from General Motors (GM, Saab, Opel and Vauxhall) and 800 of the were coming from Fiat
auto. It had two regional organizations, one that was for Europe and was run by a Fiat
manager and one for Latin American market and it was run by someone from GM and was
formerly responsible for the whole market for GM). Additionally to the organizational
structure, there were staff units, both branches having unique ones. We are talking here about
IT and human resources, cost accounting and management, external relations and legal
services.

We can clearly see that this initiative was very complex and it had to be conversed
to various “stakeholders”. The first ones were the ones that were involved directly, and they

38

were the suppliers. The core of the message that the two partners envisioned to communicate
is the fact that this alliance would represent a strategic opportunity for the suppliers too,
given the fact that they had the chance to significantly increase thei r sales without worrying
to much about the enormous marketing costs. It is also pretty clear that this kind of alliance
would be favorable to those suppliers who are known for their quality, price competitiveness,
short time of delivery and plans for cost reduction. This kind of alliances were also pushing
towards component normalization, favoring volume increases and cost reduction. The two
partners also focused on the strong cooperation between the ones of design the solution and
those who have to make it available (design and purchasing functions).

Before the agreement, the purchasing structure of Fiat Auto was an international
organization in which the managers had worldwide responsibility. In separate countries there
was a certain degree of decisional freedom, but it was based on the product itself and the
availability of suppliers.

2.9 The joint -venture for Powertrain
Fiat-GM Powertrain B.V. (a company equally controlled by General Motors and Fiat
Auto) was given the tasks of design and the manufacturing of powertrains (engines,
transmissions)21. Fiat -GM Powertrain B.V. had its headquarters in Turin, and their situation
was very similar to that of GM -Fiat Worldwide Purchasing in which they had a chairman
from Fiat, Nunzio Pulvirenti and a CEO from General Motors, Daniel Hancock. Various
plants and Research and Development centers were situated in Europe and the employment
figures were equal to 25,500 people (Table 8). Given the fact that everyone agreed that the
personality and the commercial v alue of a brand is given by the body design and the
powertrain, this company had a pretty important task. This task is also a pretty delicate one,
as it had a pretty big influence on the synergies that both partners were aiming to achieve
because they requ ired an impressive amount of work and significant amount of convergence
towards a solid package of solution regarding the: transmissions (manual, automatic and

21 Arnaldo Camuffo – Partnering in the Global Auto Industry: the Fiat -GM Strategic Alliance, Article in
International Journal of Automotive Technology and Management, 2002 available at:
https://www.researchgate.net/publication/228708381_Partnering_in_the_Global_Auto_Industry_the_Fiat –
GM_Strategic_Alliance , p. 16

39

AWD) and engines (diesel, gasoline and alternative propulsion). Obviously, that kind of
package of solution needed to be adjusted to the needs of each of the two partners, but we
have to know that the new company had other tasks as well, one of them was to position
itself as a supplier for other automakers, the two of those that were belonging to GM cluster
for example, Suzuki, but also to companies that had nothing to do with Fiat or General
Motors, like Rover -MG.

Table 8 Fiat-GM powertrain employee distribution

Source: Interpretation of: "Partnering in the Global Auto Industry the Fiat -GM” document
available online at: https://www.researchgate.net/publication/228708381/download

Overall, this should result a merger from a set of 32 individual families, 16 for both
Fiat and GM, to a single package of 19 families, almost splitting the current supply in half.
On a good note for both partners, their past experiences allowed them to be already
competent in this kind of technology and as a result this appears to be harmonizing for both
partners, as GM was a relative leader in gearboxes division and Fiat Auto was a relative
leader in diesel engines. As a consequence the merger was expecte d to be carried at a fast
rate with a result reflecting a significant innovation process for both partners.
Italy 9,500 Germany 4,500 Brasil 4,000
Austria 2,000 Sweden 1,500 UK 1,000
Hungary 1,000 Turkey 1,000 Poland 1,000
Total 25,500 (of which Fiat Auto has 14,000 and GM 11,500)

40

As we can see the mission was strategically planned and it aimed at achieving
competitive advantages when it comes to leadership in costs, perfor mance, quality and
product innovation. When it comes to organizational terms, the mission had an industrial
planned, and it was created specifically for the conjunction of diesel and gasoline engines
and transmissions with the consequence of having competi tive costs, quality and
performance. It is noteworthy that all of these were taken into account with the different
product families, different needs of customers and different brands. When this plan was
created, it was expected to be completed by 2004.

This strategy that was created for the new company, was created in order to achieve
improvements in the following areas:
 Reduction in development costs
 Reduction in time to market
 Product differentiation
 Optimization of manufacturing capacity

The most im portant objective was the constant improvement for engines and
transmissions via constant product innovations and the reduction of their cost. These benefits
would be given by the JV to the mother companies and the JV’s revenues for the sales would
be related mainly to the costs sustained.

2.10 The end of the cooperation
In the middle of 2004 GM had agreed to help Fiat with their troubled economics.
Despite all of this, there were rumors that GM was looking forward to sell their stake in Fiat
and deny the obligation of the “put option”.22
Because of the fact that Fiat has sold their financing arm to Fidis, GM argued that the put
option was void. The Fiat’s response to this argument was that GM could buyout 51% of

22 *** – Fiat and GM: The Troubled Alliance (Lecture 1) – document available at:
http://www.andidas.com/academic/lse/MN404%20 -%20Casestudy%20 -%20Fiat%20and%2 0GM.doc , p. 2

41

Fidis and because of the fact that Fiat was not allowed to alliances with others, Fiat’s
strategic freedom was limited.
If GM would have paid $3 billion Fia t would have agreed to cancel the put option,
however, GM agreed only to pay up to the book value of the stake that was $500 million.
Many opinionated that Fiat wouldn’t be saved from its declining market share even if they
would’ve had a lot of money comi ng in, but even considering all of this Fiat owners didn’t
want to sell their brand.

2.11 More than a decade later
Even though this collaboration wasn’t a successful one, 15 years later some of the
opinions seem to redirect towards the consideration of making this happen again while some
others suggest that this collaboration still wouldn’t make sense .
Fiat Chrysler Chief Executive Sergio Marchionne was interviewed in 2017 and he
shared his op inions about the Fiat -GM merger saying that this kind of collaboration would
make sense even today.

“I never close any doors. I may shamelessly try and knock again … on the GM door
or any door if I thought it was a good thing for the business. Absolut ely, without even
blinking ,”23
“The desirability of GM as a potential merger candidate remains untouched.”24

It has been reported that FCA’s (Fiat Chrysler Automobiles) share price increased in
the preceding month (February 2017), this happened on the sa me day in which there were
talks between GM and PSA (Peugeot S.A.). Some analysts reported that GM was potentially
interested in regaining some market in Europe again through FCA because it was reported
as being a more profitable business than Opel, a busi ness that kept losing money on a
downward spiral.

23 Citation taken from: https://www.reuters.com/article/us -autoshow -geneva -fiatchrysler -m-a-
idUSKBN16E1DH , pagina de internet consultata la data de 3 Iunie 2018
24 Citation taken from: https://www.reuters.com/article/us -autoshow -geneva -fiatchrysler -m-a-
idUSKBN16E1DH , pagina de internet consultata la dat a de 3 Iunie 2018

42

Other analysts said that GM would be even less interested to collaborate with its
smaller rival that is also heavily -indebted . Other factors contributing to these opinions were
the fact that FCA was contro lling only 7% of the European market and their operating profit
margin was 2.5% of their rivals.
Sergio Marchionne has reported that a PSA -Opel deal would decrease the potential
synergies that a GM -FCA deal would have, cutting from a tie -up by approximately 15%.

2.11.1 Even less interest

Source: Photo taken from “ Fiat Chrysler's CEO says a GM merger still makes
sense ”, article available at: https://www.reuters.com/article/us -autoshow -geneva –
fiatchrysler -m-a/fiat -chryslers -ceo-says-a-gm-merger -still-makes -sense -idUSKBN16E1DH

The industry, however, reported that GM was not interested at all in FCA, one of the
biggest reasons behind this is that two if big U.S. carmakers would merge this would result
in major job losses and strong union opposition.

43

GM’s board have repeatedly rejected Marchionne’s proposals and even the
company’s CEO ultimately rejected his proposal saying that they were not really interested
before and they are even less interested now.

The analysts also questioned if the acquisition of FCA would make sense, given the
fact that their price would be set for a fall. I n North American market 85% of FCA’s profits
are made and they are peaking.

FCA’s Marchionne nonetheless is still interested in making collaborations with other
partners, reporting that a collaboration with Volkswagen would be one of his main interests.
This is based on the fact that PSA would become the 2nd largest car producer in Europe as a
result of the acquisition of Opel.

44

CONCLUSIONS AND RECOMMENDANTIONS

As we can see, a collaboration of such caliber takes effort, planning, research and
experience in the field. In the first chapter we touched on the concept of cooperation and we
understood what cooperation is and what it is not. We have to understand that if we want the
maximum potential out of the cooperation, we will also want to leave out any element that
would lead to competition.
One of the first steps in the cooperation process is the research and development. Some
of the main objectives are: the div ersification process of the production and the export, the
increase of productivity and the cutback of costs, the research of high level complexity
research, the access of top tier technologies, the developme nt of national research system
etc.
One type of research process is the joint research: t hese are relationships between
partners from different countries that co -operate for the process of research and development
for a certain field or a certain objective and for a certain amount of time . One big advan tage
of this is the low cost of R&D, but there are also other advantages such as less time needed
and the decrease of the moral wear.
Next, we can note the types of the co -production: c o-production in separated
companies and co -production in mixed type societies. The former one is the most used one
and it presumes the relative equality of partners positions and their contributions . The latter
one has a mixed aspect and this can be seen from the perspective of the local an d foreign
companies, but also from the participating private and state -owned companies. Some
advantages to this one are: the free of consent at their formation, money and work
contribution, compliance with the legislation of the country where the headquart ers are and
the agreement that regulates the ratio between cooperatives.
In the second chapter, the case study we can see how 2 giant companies have gone
down the road of co -production. Unfortunately it wasn’t a successful one as I wrote in the
introductio n and this was due mainly to the external events that surrounded this
collaboration.
During the 90s Fiat and General Motors were in talks for a collaboration, that on paper
it was looking all good and fine. From Fiat perspective this looked to be somethin g that
would save them from the massive loses that they faced throughout the 90s and obviously,

45

they wanted to take part in this nonetheless. From the perspective of General Motors, this
looked like something that would help them keep pace in the consolida tion trend and help
them to keep their European and Latin American divisions.
As all of these looked good for the both companies, the collaboration began in the
year of 2000. The collaboration started on the good side, however this proved to be a short
lived one. One of the biggest reasons this collaboration did not have success was the 9/11
terrorist attack. As a result, the orders for Fiat were going steeply down. By 2002 they
suffered an operating loss of $404 million and by middle of 2002 Fiat had a net debt of $6
billion. The terrorist attack also had a big impact on the United States economy, which is the
home of General Motors, one of the two partners which also influenced the unfortunate fate
of Fiat -GM collaboration. After this, General Motors st arting cutting costs, but despite this
they were continuing to lose money ( $47 billion of healthcare costs and ($9 billion pension
fund liability). By the end of 2002 GM was already reluctant to buy Fiat, as it was reported
that they cut back the investmen ts from $2.4 billion to only $220 million. As a result, Fiat
had to re -capitalize and they sold their GM shares to Merrill Lynch.
In the middle of 2004 GM agreed to help Fiat to get out of its financial trouble.
However, by end 2004 there were reports that GM was looking forward to sell its stake in
Fiat and deny the obligation of the put option. The signs were already pretty clear and in
2005 the collaboration ended oficially.
As we can see from this case study, the process of collaboration between two
companies in order to manufacture a product it is a rather interesting one. A massive number
of elements have to be taken care of and much effort and time has to go in this. The
relationship between the two partners has to be a tight one and more importanly, a
transparrent one as it would directly influence the potential and the effectiveness of the
collaboration. The element of competitivity between the partners has to be forgotten about
as this would pretty much cause the opposite effect to what is desired. In this case study we
were proved that even if all the precautions are taken care of and even if we put a lot of time
and effort into this, there are vairous extenral factors that could greatly diminish the potential
of the collaboration.
Despite all the negative tone of the collaboration between Fiat and GM we can use it
to good things. We can have an idea what this takes and we can learn from mistakes that
were presented into it. We also can analyze the future to the possible extent and based on

46

that we can initialize the first stages of the collaboration, put all the ideas necesarry on paper
and set out realistical objectives.
I think that co -production is something that we didn’t fully explore and something that
we didnt’t fully taken advantage of. I h ope that in the future we will see more companies
considering co -production in order to manufacture physical products that would prove to be
beneficial for us all.

47

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48

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https://www.researchgate.net/publication/228708381_Partnering_in_the_Glob al_
Auto_Industry_the_Fiat -GM_Strategic_Alliance
2. *** – Fiat and GM: The Troubled Alliance (Lecture 1) – document available at:
http://www.andidas.com/academic/lse/MN404%20 -%20Casestudy%20 –
%20Fiat%20and%20GM.doc
3. *** – Il caso dell’alleanza fiat -gm – document available at:
http://www00.unibg.i t/dati/corsi/87021/51270 -IL%20CASO%20FIAT –
GM.pdf

49

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pagina de internet consulatata la data de 20 iulie 2018

50

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