Why the fight between Fiat and GM is important to F1

The mediation process between General Motors and Fiat over the terms of a contract which was intended to enable the two companies to merge operations is now coming to an end and it seems that there is no sign of a settlement between the two parties. This means that if Fiat wants to insist that its debt-ridden car division be taken over by GM it will have to go to court to win the right to force a purchase. GM says that the deal has been negated because Fiat sold off the consumer credit activities of the car division and restructured the company in order to keep the business afloat. If no deal can be found Fiat will have no choice but to go to court but the danger of that move is that the process will take so long that the firm will run out of money before it is completed. Fiat Auto has massive debts that need to restructured in order that the firm remain solvent. This has led to rumours in recent weeks that the Italians may sell off Lancia and Iveco to raise more cash.

All of this activity is keeping Fiat boss Luca di Montezemolo very busy at the moment. Fiat also owns the Ferrari-Maserati company, the parent of the Ferrari F1 team, but is in no position to supply any funding to the team. Ferrari has made no secret of the fact that it needs to make the F1 programme more cost-effective and yet at the same time the team has been blocking cost-cutting measures it does not want. The only explanation for this is that the team does not want to undermine its current sporting advantage, gained by having a massive testing programme and a special relationship with Bridgestone.

Ferrari, however, does need to come back to the F1 negotiating table at some point because even if Bernie Ecclestone pays $150m upfront to the team (as our sources suggest is what convinced the team to sign a new contract intended to cover the period period from 2008 to 2012) the team will run out of money if it has to continue spending at the current rate. There are also fears about what will happen if Marlboro pulls the plug on its funding. At the moment the tobacco giant seems to think it can go on beyond 2006 but that is a can of worms which the sport would do well not to open. Rivals teams are already saying that F1 now needs to dump tobacco and that any continued backing will stop other firms from coming in. this opens the way for potential legal actions between the teams as well as legal actions between governments and the tobacco giant.

That may sound unlikely but Ferrari has now become so politically isolated in F1 that people are beginning to question whether the team really is that important to the sport. They argue that many famous marques, notably Lotus, Maserati, Matra and others, have disappeared from F1 and that Grand Prix racing has survived without them and would survive without Ferrari if it had to.

This is dangerous talk but there are an increasing number of people in the other F1 teams who say that they do not care and point to the fact that the Ferrari-FIA-FOM contract is only for five years (rather than the 10 or 15 years that had been bandied around a few months ago) and that Ferrari, therefore, is only willing to commit to F1 for another five year.

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