European auto deal

Franz confirmed Thursday reports that said Fiat was ready to sign a declaration of intent on a takeover as early as next Tuesday.

However he claimed Fiat had no interest in a strategic partnership with Opel. He said an alliance with Fiat would lead to massive job cuts at Opel and the closure of German factories after Bundestag elections in September. Opel has around 25,000 workers.

Franz also said Fiat, which has 14.2 billion euros ($18.4 billion) of debt sitting over its head, had no way of finding the 500 million euros in fresh capital GM is seeking from a suitor.

"Fiat has … huge liquidity problems. They can't get hold of money at the moment," Franz said. "The government can't give guarantees for such a transparent plan."

On Thursday, Fiat posted a first-quarter loss of 411 million euros and ruled out any direct investment as part of a potential deal for a strategic partnership with US peer Chrysler.

"No agreements"

Roland Koch, the premier of the German state of Hesse, where Opel has its headquarters, confirmed that Fiat was involved in discussions over a potential takeover. He said that Canadian car parts maker Magna was also interested in a stake, but that no agreements have been reached yet.

German Economics Minister Karl-Theodor zu Guttenberg also said no decision had been taken on Fiat's role in any takeover. "The federal government is holding talks with various interested parties, without any predetermination," Guttenberg said.

The online version of US daily Wall Street Journal reported that Fiat chief executive Sergio Marchionne had held talks with Guttenberg in Berlin last week.

Job cuts certain

Christoph Stuermer, an auto industry expert at think tank IHS Global Insight, said Opel's manufacturing and technological aspects would be of little interest to Fiat.

"On top of having a 100 percent overlapping product portfolio, Fiat and Opel also have a very much overlapping regional footprint … So I think that Mr Franz is being very polite. I think that the long-term strategy of Fiat is really to keep the market share and get rid of all the rest of Opel."

Stuermer also said that Fiat would most likely not be able to go it alone in its bid for control of Opel.

"I think that Fiat at the moment does not have the free cash lying around to just come up with the money. They would certainly have to team up either with one of the other interested parties in investing in Opel or with one of their own long-term partners from the Agnelli family or wider Italy."

Spokespeople from Fiat and Opel were unavailable for comment on Thursday on the potential takeover.

Two sides of the coin

Pierluigi Bellini, associate director of IHS's automotive division in Milan, agreed that a Fiat-Opel fusion would spell the end for thousands of German workers.

"Fiat and Opel have obvious synergies here, scales of economy," he said. "But the other side of the coin is that work forces would need to be cut, both in Germany and Italy, and I don't know if that is feasible now. Especially in Germany, where you have an election year, and in Italy the situation is already pretty bad for Italian plants."

Despite all the potential points of synergy, Fiat faces an uphill battle to convince Opel's management and the industry at large that it has the capacity to take control of the German carmaker.

Author: Darren Mara
Editor: Michael Lawton