When they announced a strategic alliance and stock swap in March, General Motors Corp. and Fiat SpA said that despite their new relationship, they wanted to remain competitors. That shouldn't be difficult considering the overlap they have in product segments, manufacturing footprints and world markets.

The deal calls for GM to pay $2.4 billion for a 20% stake in Fiat's auto operations. In exchange, the Italian company acquires 5.1% of GM common stock, making it GM's largest shareholder. Fiat has an option to sell its remaining 80% stake to GM at fair market value between 2003 and 2009.

Initially the tie-up looked like another alliance justified by an industry that at times appears bent on consolidation for its own sake. Yet Fiat and GM are promising significant savings - $2 billion by 2005 - in several areas. The two will share technology and could leverage each other's powertrains and platforms (combining efforts on the next-generation Opel Corsa and Fiat Punto is expected to be the first order of business). "This is an alliance about synergies," proclaimed GM Chairman and Chief Executive Officer John F. Smith Jr.

One of the deal's highlights is a plan to set up purchasing and powertrain joint ventures to focus on South America and Europe. The powertrain JV will concentrate on diesel engine expertise and employ some 40,000 workers. Initial engine strategies include GM dropping its diesel engines under 2L in favor of using Fiat powerplants, and Fiat halting use of its 2.4L and using an Isuzu V-6 and GM's 2.2L direct-injection unit.

While engine sharing alone will provide savings of $180 million by 2003, filling gaps in product lineups and gaining entrance into previously untapped markets arguably are the most beneficial reasons for an alliance. And they largely are absent in the GM-Fiat deal. Investors didn't believe the benefits presented by GM and Fiat, and on March 14 inflicted on Fiat one of its worst one-day share price losses (10.8%) in recent years. Ironically, Fiat likely stands to gain more from the tie-up than GM because it plans to use the alliance to re-enter the U.S. market with its Alfa brand. GM, meanwhile, was neither punished nor rewarded by Wall Street despite being criticized by some analysts who thought it paid too much for a midsize auto company with past quality problems.

Stockholders may be cranky because they are looking for more cooperation within the companies' manufacturing networks and product lineups where labor costs, marketing expenditures and other expenses could be cut. This especially is the case in Eastern Europe and South America, where the carmakers have similar positions.

For example, the companies each are building an assembly plant in Brazil. Fiat already is a major player there with a 26% market share, and GM has increased its presence in the country in recent years.

It's the same story in Eastern Europe and former Soviet countries. GM and Fiat have been negotiating separate joint ventures in Russia.

Fiat and GM also are big players in Poland. They each have two assembly plants and rank among the top three automakers there. In a country with a newborn free market economy, they have the important low-end of the market covered with the Fiat Seicento and upcoming Opel Agila. In fact, in Europe and emerging markets, Fiat and its Alfa Romeo and Lancia brands take on GM's Adam Opel AG and Saab Automobile in many segments - A-, B-, C-class, near executive, executive, sports cars/coupes, sport/utility vehicles and more. That paves the way for platform sharing, but also forces GM and Fiat to continue to compete for buyer attention.

A DaimlerChrysler AG purchase of Fiat, which also had been explored and is still rumored, would have been a much more com-plementary fit, many analysts suggest. But Fiat stood to lose its autonomy in that deal.

There also is legitimate concern about GM's ability to coordinate its recently adopted tentacle-like approach to the industry. In Europe, GM is overflowing with brands: Vauxhall, Saab, Opel, Cadillac and Chevrolet. It owns small chunks of three companies in Asia. While a minority arrangement lessens risks for GM, it diminishes control, too.

And GM's buckshot strategy (Read: Even if you have your eyes closed, you'll probably hit something) isn't done yet. GM and Fiat both are bidding on buying Daewoo Motor Co. Ltd. and could combine efforts if given the option by the South Korean government.

The only world market where GM and Fiat don't overlap is North America. Fiat doesn't sell or build vehicles here. And with GM fighting to maintain its market share from a hard-charging Ford Motor Co., for the time being, it might be best not to invite any more visitors to the party, even though Fiat says it could sell Alfa cars through a GM network by 2003.

Speaking of guests, GM's Powertrain operations have extended quite a few invitations lately. Fiat joins Honda Motor Co. Ltd., Subaru, Suzuki and Isuzu in GM's engine clique. Long considered the premier powertrain manufacturer in the industry, how much assistance does GM need? "Each one of those provides a center of expertise," explains a GM spokesman.