GM to Pay $2 Billion to Settle Dispute With Fiat

General Motors Corp., the world’s biggest carmaker, will pay Fiat 1.55 billion euros ($2 billion) to avoid having to take over the unprofitable auto unit of Italy’s largest manufacturer.

The two companies also agreed to end two joint ventures formed in 2000, according to a statement from the carmakers. GM will return its 10% stake in Fiat Auto as part of the settlement. GM said it would take an after-tax charge of $840 million, or $1.49 a share, as a result of the accord.

“GM and Fiat have agreed that it is in the best interest of their companies and shareholders to terminate the master agreement,” GM Chairman and Chief Executive Rick Wagoner said in the statement.

The agreement gives cash to Fiat as CEO Sergio Marchionne struggles to return the company controlled by Italy’s Agnelli family to profit. For General Motors, the settlement removes the threat of having to assume control of a carmaker that hasn’t made money since 2000.

“General Motors has plenty on its plate without having to manage a sick company with a huge cultural difference from them,” said David Healy, an analyst with Burnham Securities in New York.

Fiat is revoking an option that might have forced Detroit- based GM to buy Fiat Auto. The carmakers are dissolving their powertrain and purchasing joint ventures but forming a new venture to operate a powertrain factory in Poland.

General Motors bought 20% of Turin, Italy-based Fiat Auto in March 2000 as part of an agreement to cooperate on the development and production of engines and autos. A capital increase by Fiat in 2003 reduced GM’s stake to 10%. GM Europe and Fiat Auto each have lost billions of euros and cut jobs over the last three years because of competition from French and Japanese carmakers.

“The most important thing about this agreement is that it solves all the problems we have had with GM in the last five years,” Marchionne said in Turin. “This agreement gives us absolute freedom.”