TURIN - If General Motors adopts Fiat Auto's spaceframe technology for its mainstream European models after 2005, some traditional GM suppliers may be hurt.
However, suppliers such as Fiat-controlled Magneti Marelli, which relies on Fiat Auto for 40 percent of its sales, could profit immensely from the partnership.
'If they use a similar platform or the same platform, we hope to do well,' said a Magneti Marelli spokesman. 'The question is if and when. We don't expect this to happen for three or four years.'
But GM Europe suppliers also hope to benefit from the deal. 'We don't get much business from Fiat because they are dominated by their in-house supplier Magneti Marelli,' said Wolfgang Wahls, a senior manager at Mannesmann VDO in Dusselsdorf. 'The alliance could mean we get better connections to Fiat.'
Mannesmann supplies GM with components ranging from instrument panels to shock absorbers.
Sources say GM is considering basing future Opel/Vauxhall models on Fiat's new modular platform. The Fiat platform strategy is based on spaceframe technology. GM uses a traditional monocoque platform.
Platforms, engines and transmissions are the key areas being studied by the integration teams set up by the two companies to identify synergies. Initial reports are due by the end of next week.
Switching to Fiat's platforms could have dire implications for GM's Opel/Vauxhall suppliers. 'We don't think GM would switch completely to Fiat platforms,' said Wahls. 'But it could be that the platforms of one or the other disappear. If you are the supplier of a platform that disappears, you will be very unlucky.'
The unibody construction of Opel/Vauxhall cars requires the use of a specific die for each part of the body-in-white. This type of chassis has the advantage of creating an optimum balance between stiffness and weight. But it requires major investments for body variants.
Fiat's modular platform adapts the concept of the spaceframe for mass production.
Dies are needed only for body panels and some parts of the platform. The modular platform weighs more than the monocoque but offers greater flexibility because different exterior skins can be used on the same base skeleton. This will allow Fiat to use the same platform for many different models and derivatives, and to make money from much lower production runs.
Opel has been interested in spaceframes for several years. It made two concept cars in the late `90s based on spaceframe technology, the Maxx and the G90, but both platforms used aluminum. Although Opel executives were anxious to put the Maxx, a small city innovative city car, into production, the project failed to get approval because of the high cost of using aluminum.
Fiat's approach is less costly because body panels and select platform components can be built using existing stamping machines. Steel sections are constructed using bending machines that are less expensive than those needed for aluminum.
The modular platform also requires less floor space than the monocoque because the majority of sub-components are pre-assembled prior to the final body-in-white construction.
Delphi Europe, which still relies on GM worldwide for 76 percent of its sales even after being spun-off, said it hasn't considered the implications of platform sharing. 'The alliance is pretty new and we have to understand where they want to go,' said a spokeswoman.
While platforms are an important area for the alliance, the integration teams' will also be looking at powertrains, purchasing and finance, said a GM Europe spokesman. The teams were formed a week after the alliance was announced and key representatives met in Turin at Fiat headquarters last week.
The teams will report to a six-member steering committee comprised of: GM President Rick Wagoner, GM Europe president Michael Burns, GM do Brasil President Fritz Henderson, Fiat SpA Chief Executive Officer Paolo Cantarella, Fiat Auto Managing Director Roberto Testore and Fiat Latin America Chief Executive Officer Gianni Coda.
According to senior Fiat executives, the replacements for GM's next Opel/Vauxhall Corsa (due later this year) and the Agila small minivan (seen at this month's Geneva show) will share Fiat's new A-B platform with the next Fiat Seicento, Punto and Palio.
At full production, the small-car platform would represent a combined volume of more than 2.5 million vehicles a year.
The Corsa and the Suzuki-based Agila are not expected to be replaced until about 2005.
In addition, Fiat's C-D platform, the basis for the Fiat Bravo/Brava and Marea and related Alfa Romeo and Lancia models, could provide the basis for future replacements for the Opel/Vauxhall Astra, Vectra and Omega. That will create a platform group with sales of about 2.2 million vehicles a year.
A new Astra was launched in 1998. The current Vectra and Omega are due to be replaced by GM-developed cars in 2001 and 2003, respectively.
GM and Fiat are reviewing their product plans to see when they can be merged, a source said. But he said the first vehicle off a common platform is likely to appear in 2005.
By then, according to Fiat's estimates, reduced development costs from platform sharing will have generated an $450 million in savings.
And the savings from economies of scale will rise sharply as production increases after 2005, and as more models are added to the mix.
The savings would be in addition to the $2 billion a year the two automakers expect to save beginning in 2005 by merging purchasing and some backshop operations.
Under the deal, GM will take a 20 percent stake in Fiat Auto valued at about $2.4 billion in exchange for an equally valued 5.1 percent stake in GM by Fiat. Fiat's stake in GM will expand to about 5.9 percent later this year because of GM share buybacks, making Fiat one of GM's first or second biggest shareholders.
The deal, which values Fiat Auto at about $12.4 billion, also gives Fiat the right to force GM to buy the remaining 80 percent 'at fair market value' during a 5 1/2-year period that begins in 2004.
At the heart of the alliance will be a 50-50 joint venture to manage the GM and Fiat engine and transmission operations in Europe and Latin America. The company will have annual revenue of $4 billion, will produce 5 million engines and transmissions a year andand will employ about 40,000 people, executives said.
Fiat executives said that plans already are under way to replace several GM diesel engines and transmissions with Fiat units. Savings from the changes should reach the bottom lines of both companies, analysts say.
The partners say they will continue to compete vigorously in the marketplace everywhere but in North America, where GM will begin distributing Alfa Romeo sometime after 2004. Alfa withdrew from the US at the end of 1995.
The partners have no plans to reintroduce the Lancia and Fiat brands to North America, Fiat executives said. Lancia withdrew from the US market in 1977, and Fiat left in 1983.
Many analysts consider the alliance to be a good move for both companies, if not for shareholders.
'The alliance keeps Fiat out of the clutches of DaimlerChrysler and enables GM to strengthen its position in Europe by reducing development costs for engines and powertrains,' said David Healy of Burnham Securities in New York.
'From GM's point of view, it attacks a primary problem that it has in Europe, and that's weak profit margins. It would be very difficult for GM to improve its profit margins on its own without major cost cutting that the Fiat deal will enable GM to do.'
John Casesa, who follows the industry for Merrill Lynch Securities in New York, suggested GM might have paid too much for its stake, even though he expects the venture to pay dividends.
'It looks expensive, but it does help GM strategically in a big way,' he said. 'It really strengthens the company in Europe and gives it a dominant position in South America.'
By taking Fiat off the market, the tie-up puts added pressure on DCX and Ford especially to find partners, analysts agreed.
'This was a brilliant strategic move, whether that was their intent or not,' said Jim Hall, vice president of industry analysis for AutoPacific Inc. and a former GM executive. 'They have made it very difficult for anybody to tie up with anybody in Europe but PSA/Peugeot-Citroen.'