Tuesday, January 4, 2005

For auto world, '05 looks litigious

GM-Fiat clash takes top billing in series of potentially damaging vehicle legal disputes.

By Christine Tierney / The Detroit News

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If 2004 were the Year of the Car, this may be the Year of the Lawsuit.

Detroit's automakers are embroiled in legal disputes likely to result in embarrassing disclosures, at the least, or potentially devastating financial judgments.

A verdict is still pending in the high-profile fraud case pitting billionaire investor Kirk Kerkorian against DaimlerChrysler AG CEO Juergen Schrempp.

Kerkorian wants more than $1 billion in damages, claiming he was duped into believing that the 1998 deal between Daimler-Benz and Chrysler was a merger when he says it turned out to be a takeover. The trial ended a year ago, and both parties are now impatiently awaiting a verdict.

Ford Motor Co. is gearing up to refute accusations by former Ford of Europe president Martin Leach, who claims the Dearborn automaker pushed him out and then derailed his career.

But the case with the highest stakes is the increasingly bitter dispute between General Motors Corp. and Italy's Fiat SpA.

The top bosses of both companies entered mediation last month to resolve their disagreement: Does Fiat have the right to force GM to buy its Fiat Auto subsidiary?

In 2000, when GM purchased a 20 percent stake in Fiat Auto from parent Fiat SpA for $2.4 billion, the deal included a "put option" that allowed Fiat to require GM to buy the rest.

But instead of bringing together two strong players, the deal turned into an alliance of the ailing.

GM's European operations have lost $3 billion since 2000. Fiat Auto has fared worse, losing more than $9 billion in the past four years, according to investment firm Deutsche Bank.

Following the deaths of Fiat patriarchs Giovanni and Umberto Agnelli and upheavals in management, the Fiat group no longer seems fully committed to the ailing automaker.

Fiat CEO Sergio Marchionne has not said whether he wants to sell Fiat Auto to GM - but he wants to establish that Fiat has the right to do so.

GM executives say the put option was voided by Fiat's 2002 recapitalization. GM did not participate, allowing its holding in Fiat Auto to fall to 10 percent. The U.S. automaker says Fiat Auto's structure also was altered by the sale of assets, such as a 51 percent stake in its Fidis Retail financing arm in 2003.

But when Fiat sold Fidis to a group of Italian banks, it inserted an option in the deal allowing the company to buy back the stake.

Those banks recently agreed to extend the option, in a move that might strengthen Fiat's hand in its negotiations with GM.

Most analysts believe the companies will settle, with GM paying a sum in exchange for the put option. Estimates range from $500 million to as much as $3.6 billion - a figure floated by the Italian newspaper La Repubblica, citing a Citigroup report.

GM has written off nearly the entire value of its stake in Fiat Auto, and most analysts estimate the value of the Italian carmaker at close to zero.

But the automaker carries $10 billion in debt - and Marchionne says anyone who buys Fiat Auto would have to assume its liabilities.

In this game of corporate poker, GM holds strong cards, too. If forced to buy Fiat Auto, GM could impose a massive restructuring that would create huge problems for the Italian government ahead of 2006 elections.

Italian newspapers report that Marchionne and GM CEO Rick Wagoner will meet for talks Friday. GM and Fiat declined to comment.

By comparison, Ford's dispute with Martin Leach is a minor annoyance. At issue is whether Ford had the right to cite a "noncompete" clause to block Leach from concluding an offer to run Fiat Auto.

Leach, who now heads Fiat's Maserati arm, may seek as much as $120 million, according to British newspaper reports. Any settlement would be far smaller.

Ford has won a motion to keep some corporate planning documents from being displayed in a public trial. But if the case goes to court, a trial would probably expose unbecoming behavior by top-level bosses.

DaimlerChrysler AG also risks more embarrassment than financial pain in the case filed by Kerkorian.

His claims are based on deeply ill-advised remarks Schrempp made in two interviews in November 2000. Was Schrempp crowing that he had intended to make Chrysler a division in his empire, as Kerkorian's attorneys argue? Or was he trying to appear that he was in control of a rapidly deteriorating situation, as one DaimlerChrysler supervisory board member suggested?

With lawyers planning appeals, that case seems destined to drag on far beyond this year.

World Auto View You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.