After secret talks between GM and Fiat over the 'put' option broke down yesterday, mediation will begin in an effort to resolve the issue before legal action commences.

Yesterday Fiat CEO Sergio Marchionne flew to a secret meeting with GM's boss Rick Wagoner in Friedrichshafen, a town on the Swiss-German border, as the pressure over the controversial option rose to fever pitch.

The pair, along with a group of senior managers from both companies, chose the town on lake Constance, to avoid intense attention which was focused on their original location in Zurich, a quarterly 'steering committee' meeting of their Powertrain joint venture.

However, with Marchionne pressing hard to resolve the 'put' option and making strong noises over forcing Fiat's loss-making auto division into GM's hands, the talks eventually broke down after the two were unable to come to any firm agreement.

With the one year moratorium between the two firms from taking legal action over the option expiring today, the way is clear to resolve the matter, in the short run up before it kicks-into its exercise period on 24th January 2005.

Fiat revealed, in an announcement made this morning, that a period of mediation would commence, 'This process,' read the short statement, 'which involves direct dialogue between the two CEOs, is designed to allow the parties to resolve the dispute before resorting to other means, including litigation."

GM sticking to their position

For GM's part, they are sticking to their arguments that the part sale of Fidis, and the 3 billion euro recapitalisation of the Group last year, which diluted their original 20 percent shareholding, have negated the continuing validity of the 'put' option.
 

Fidis, the auto division's profitable financial services arm, was one of a number of assets sold off last year to raise urgently needed capital.

However, the Italians inserted an option, which remains completely valid, lasting until 31st January 2006, which allows them the right to buy it back. They argue that this sticks within the carefully defined terms of the original GM-Fiat contract, and that if required, they are prepared to buy it back.

GM themselves are struggling to restructure their own European carmaking business, Adam Opel AG, which has recently plunged deeply into the red, and are eager to avoid legal action. They also value the series of joint ventures underway with Fiat in the areas of engine and transmission production, platform development and joint purchasing, as a way of helping them to reduce their own costs.

A spokesman for GM commented earlier today that "We will engage in the process, which is there to try to resolve disputes before any other action is taken."

'Master agreement' in place to resolve option

The 'master agreement' for resolving any dispute over the 'put' option is very clear. Under its term Marchionne and Wagoner must meet with twenty business days, and that the period will last for thirty business days.

If both sides agree, then this period can be extended, but if the two parties cannot agree with ten days of the meeting, then they way is open for legal proceedings to begin.