Divorce Final

The price of a corporate divorce can be steep, as General Motors Corp. now can attest.

GM agreed last month to pay $2 billion to its ailing Italian alliance partner, Fiat Auto SpA, to nullify a pesky clause in their original pact that would have forced GM to purchase by 2010 the 90% stake in Fiat Auto it did not already own.

The clause and the entire pact now is dead. After months of saber rattling, GM will pay Fiat a direct cash payment of $1.3 billion immediately.

The remaining $700 million will be delivered as the two auto makers finalize the process of shutting down joint ventures formed in the original pact, signed in March 2000, when GM paid $2.4 billion for a 20% stake in Fiat Auto.

GM also will return its 10% equity holding in Fiat Auto, which will be transferred to corporate parent Fiat SpA.

Along with the cash payment, GM and Fiat agree to dissolve their GM-Fiat Powertrain JV, which was one of the few bright spots in the alliance. The joint venture gave GM access to Fiat's small diesel engine technology, which it desperately needed for the European market, while Fiat gained access to improved gasoline engine technology.

Each auto maker will regain control of the assets each contributed to the powertrain JV, while engines will be supplied to both auto makers without interruption.

Separately, the Italian auto maker says it will transfer full ownership of Maserati SpA under Fiat Auto “as soon as practicable.”

The announcement was followed by a series of management changes, including the ouster of Fait Auto CEO Herbert Demel, who was replaced by Fiat SpA CEO Sergio Marchionne, who negotiated the settlement with GM.

The newly installed chief also gave walking papers to Maserati CEO Martin Leach and moved Ferrari SpA chief designer Frank Stephenson to run the Fiat, Lancia and commercial vehicle styling center.