Case Study---Fiat and GM: the troubled alliance

An overview

As trend in big businesses, the nature of the business grows there is a need for expansion and mergers. Although some of the mergers are benefiting and dangerous, they are entered into to maximize profits. This case study looks at the merger between two auto manufacturers, Fiat and General Motors (GM) and the problems and prospects they had. In evaluating the general environment facing the alliance between Fiat and GM the opportunities were for cost saving and cross--sharing of automotive technologies. Fiat saw the alliance as a means to save its ailing auto division which had been experiencing losses since the 1990s. For GM, the alliance was necessity to keep pace with current trend of the auto industry where rapid mergers had been on the rise since the 1990s. With the declining trend in its European operations, GM saw the merger as a means to enhance its operations in Europe and Latin America. However, the threats was that Fiat looses began to increase, fiat sought recapitalization and GM refraining from participating in the recapitalization thereby reducing its stake in Fiat Auto from 20 percent to 10 percent. Using the porter Five Forces model to analyze the global Automobile industry one can conclude that it’s a very attractive industry. Giving the demand for Cars the world over the competitive nature of the industry, it’s an attractive industry. The two main competitors of Fiat and GM are Diamler-Chrylser and Ford with its acquisition of Volvo in 1999. In measuring up with those competitors, Fiat and GM firstly structured their alliance as “allies in costs, and competitors in Market that is they will share the cost but continue their competition in the European and Latin American markets with the main objective of obtaining synergies as partners. Under their agreement, GM