Subject category:
Strategy and General Management
Published by:
IBS Case Development Center
Length: 13 pages
Data source: Published sources
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https://casecent.re/p/62274
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Abstract
The auto division of the Italian conglomerate Fiat, has been incurring losses since the mid-1990s. Fiat''s attempt to save its ailing auto division resulted in a strategic alliance with General Motors Corp (GM) in 2000 under which GM obtained a 20% stake in Fiat Auto while Fiat obtained 5.1% in GM. Fiat also enjoyed a put option in which it had the right to sell the remaining stake to GM after four years. However, as Fiat''s losses increased in 2003 and the company sought a recapitalisation, GM''s stake in Fiat was reduced to 10% as it refused to be part of the recapitalisation process. In 2004, with GM''s refusal to buy the remaining 90% stake in Fiat auto under Fiat''s put option, the alliance turned hostile. This case study, while highlighting the reasons for the break-up of the Fiat-GM strategic alliance, enables discussion on the future of strategic alliances in the global automobile industry.
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Abstract
The auto division of the Italian conglomerate Fiat, has been incurring losses since the mid-1990s. Fiat''s attempt to save its ailing auto division resulted in a strategic alliance with General Motors Corp (GM) in 2000 under which GM obtained a 20% stake in Fiat Auto while Fiat obtained 5.1% in GM. Fiat also enjoyed a put option in which it had the right to sell the remaining stake to GM after four years. However, as Fiat''s losses increased in 2003 and the company sought a recapitalisation, GM''s stake in Fiat was reduced to 10% as it refused to be part of the recapitalisation process. In 2004, with GM''s refusal to buy the remaining 90% stake in Fiat auto under Fiat''s put option, the alliance turned hostile. This case study, while highlighting the reasons for the break-up of the Fiat-GM strategic alliance, enables discussion on the future of strategic alliances in the global automobile industry.