European Auto Makers Fiat, Volvo Discussing Alliance

Fiat, Europe’s third-biggest car maker, confirmed Sunday that it is in talks with Swedish car and truck maker Volvo about forging an alliance, according to a member of Italy’s Agnelli family, which controls Fiat.

Umberto Agnelli, chairman of Ifil, an Agnelli family holding company and the dominant shareholder in Fiat, said Volvo was one of “two or three” possible partners for Fiat. There is no deadline for the talks, and a combination isn’t “indispensable” for Fiat, he said.

Daimler-Benz’s $36-billion purchase of U.S. auto maker Chrysler Corp. last year has put pressure on other European car makers to seek combinations to cut costs and help sell products internationally. Speculation that Volvo, Europe’s No. 7 auto maker, will be bought by Fiat or another company has boosted the Swedish company’s shares by 40% since mid-December. Fiat shares rose by a fifth in the same period.

“We are in talks [with Volvo] but not only with them,” Agnelli said. “An alliance is welcome if it is done in a correct manner with a clear industrial plan and financial plan, otherwise Fiat will play its own cards.”

Volvo has hired a U.S. investment bank--which one is unknown--to explore the sale or merger of its car division, the Financial Times reported earlier this week, citing an unnamed Volvo official.

“There’s a wish within Volvo to find a partner or a new shareholder,” said Claes Vikbladh, chief analyst at Nordiska Fondkommission in Stockholm.

Volvo might be bought as a whole, or it could sell its car unit and use the proceeds to beef up its truck operations, analysts said. The car unit has been valued by analysts at as much as $5.6 billion.

Volvo sold off all nonautomotive assets after a failed merger with France’s Renault in early 1994. It has since emerged as a powerful contender in the truck, bus and construction equipment industries, ranking among the top three in the world in each. The car division, however, remains one of the smallest in the industry.

Still, the safety-conscious car maker recently introduced a new car model, the S80 sedan, to take on luxury car makers such as DaimlerChrysler’s Mercedes-Benz unit.