MercoPress. South Atlantic News Agency

Fiat planning a new auto giant with Chrysler and GM Latinamerica

Fiat CEO Sergio Marchionne interested in GM's operations in Latin America

Fiat is eyeing US auto giant General Motors' operations in Latin America as well as those in Europe (Opel) and discussions on a possible deal are under way, an industry source said Tuesday.

“Fiat is also interested in GM's operations in Latin America” the source told the French news agency AFP. A Fiat spokesman declined to comment when reached.

Fiat CEO Sergio Marchionne on Monday unveiled a grand plan to create a new global auto giant by grabbing General Motors' European arm and merging it with Chrysler, the ailing GM rival with which Fiat has finalised an alliance.

General Motors is well established in Brazil, Argentina and Chile and in 2008 sold 1.2 million units in the region. Fiat sales on the other hand reached 700.000 units including 25% of the Brazilian auto market.

According to Italian sources GM could cede its activities in Latinamerica in the framework of its restructuring plan.

“GM must face the Obama task force before the end of the month”, recalled the source. GM has received significant funds from the US government and must show by the end of the month that it is a financially viable corporation on the long term.

Last Monday Fiat presented the German government a plan to take over GM’s affiliate Opel.

Although Fiat currently is a light weight player in the auto industry with sales of 2.15 million units in 2008, the Italian manufacturer is taking advantage of the current crisis in the industry to move forward.

Fiat CEO Sergio Marchionne believes that the current crisis will trigger concentration in the industry with five, probably six global manufacturers averaging 5.5 to 6 million units each.

With this in mind Fiat plans a new company which would combine its own brands, Fiat, Alfa Romeo and Lancia with the US Chrysler and GM European operations. The company would have an annual turnover of 110 billion US dollars and a production of 6 to 7 million cars annually.

Meantime in the United States a group of lenders unhappy with the reconstruction of Chrysler - in Chapter 11 bankruptcy protection - has asked a New York court to halt the process.

The US government is backing a plan to sell most Chrysler assets to a new entity led by Italian carmaker Fiat. But a group of 20 lenders, including hedge funds, want the deal blocked.

Lawyers representing the group, who have also asked for their identities to be kept secret, said the plan would go against normal bankruptcy principles.

Chrysler has asked for permission for a quick sale of most of its assets to a new company held by Fiat , a United Auto Workers union healthcare trust and the US and Canadian governments.

The group of lenders says the proposed procedures are not legitimate and do not maximise the sale price of the assets.

They have also previously said Chrysler's proposed plan “inverts” the usual priority scheme, whereby senior secured creditors are paid in full first, followed by junior lenders, administrative claims, unsecured lenders and equity holders.

Creditors object to the way the restructuring benefits the United Auto Workers union, which is an unsecured creditor, for the 10.6 billion US dollars bn Chrysler owes to its retiree healthcare fund.

In addition, they say the anonymity request is because they feel they are unfairly becoming the focus for a political backlash.

When President Barack Obama unveiled the proposed Chrysler bankruptcy last week he called the lender group - who hold more than 300 million US dollars of secured Chrysler debt - “speculators.”

Michigan Governor Jennifer Granholm has described the group's members as “greedy hedge funds,” and Representative John Dingell, a Michigan Democrat, has labelled them as “vultures.”

In a court filing the lender group said some of their members have received death threats. The group urged the court to prevent the sale or substantially change it.