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October 6, 2005
General Motors Plans to Sell Its Stake in Subaru's Parent
By DANNY HAKIM

DETROIT

GENERAL MOTORS said yesterday that it would sell its 20 percent stake in Fuji Heavy Industries, the parent of Subaru, in a deal that could raise more than $700 million.

Much of G.M.'s stake was to be sold to its top foreign rival, Toyota.

The sale would bring in money at a time when General Motors is burning through cash and mulling a multibillion-dollar bailout of Delphi, its largest supplier of parts. The amount is below the $1.3 billion G.M. paid for the Fuji investment in 1999 and the $1.5 billion value the investment carries on G.M.'s books.

G.M. will restate its second-quarter results, taking a charge that will lead to an additional $700 million to $800 million in losses, increasing its loss in the first half of 2005 to more than $2 billion. G.M. shares fell $1.45, or 4.8 percent, to $28.63.

The deal has ramifications around the world. It is a blow to G.M.'s troubled Saab brand, which operates a single plant in Sweden and was co-developing vehicles with Subaru.

For Toyota, the Fuji stake will give the company access to Fuji's advanced battery technology at a time when Toyota has said it aims to sell a million hybrid electric vehicles a year by early next decade.

Separately, Toyota increased its stake in Panasonic EV Energy, a crucial supplier of batteries for hybrids, to 60 percent from 40 percent, a Toyota spokesman said. Availability of hybrid parts has been a point of contention between the Ford Motor Company and Japanese hybrid makers.

Under the terms of the sale, G.M. sold 8.7 percent of Fuji to Toyota for $315 million. The remaining 11.4 percent stake will be offered to Fuji shareholders, with any shares left over to be sold on the open market. At current prices, the 11.4 percent stake would be worth just over $400 million.

G.M. executives said the deal was not done to raise cash, but instead follows an announcement in May in which Fuji executives laid out a bleak outlook for sales and profit. G.M. officers also said that the partnership was not as lucrative as they had hoped, but stressed that the money raised from the sale would be directed into fast-growing Asian operations.

"We've had a good partnership," Troy Clarke, president of GM Asia Pacific, said in a statement. "There were not enough collaborative projects to sustain the alliance."

Toni Simonetti, a G.M. spokeswoman, said "liquidity was not the driver, it was to redeploy our assets to where they will be better utilized."

But Himanshu Patel, an analyst at J. P. Morgan, said in a research note that the "timing of this pending divestiture cannot be overlooked."

G.M.'s former parts division, Delphi, has threatened to file for bankruptcy by Oct. 17 unless G.M. and the United Auto Workers union agree to what would be a multibillion-dollar bailout. G.M. has already exhausted more than $3 billion in cash in the first half of the year to finance its operations. Analysts said that G.M. could potentially raise more money by selling investments in other automakers, like Suzuki and Isuzu.

The Fuji sale will complicate plans for Saab. One of Saab's five models, the Saab 9-2x, is essentially a Subaru made over to look like a Saab, though it is not a big seller. G.M. had planned to develop a Saab version of Subaru's B9 Tribeca, a seven-passenger vehicle known as a crossover because it combines elements of an S.U.V. and a car. The vehicle had been anticipated by Saab dealers.

"We at Saab are looking for a seven-passenger vehicle, and that was a seven-passenger vehicle," said Steve Coleman, the owner of Saab of Santa Ana in California and a member of Saab's national council of dealers. Mr. Coleman said he found out about the sale in a conference call that G.M. had with the council.

Tom Beaman, a spokesman for Saab, said the company would still find a way to develop a seven-passenger crossover vehicle.

"Saab is extremely important to G.M. because it is our only premium European brand," he said, adding that it brought customers "into G.M. who we otherwise wouldn't have."

A Toyota executive said his company would develop and produce vehicles with Subaru, which could provide some measure of help to Toyota in reaching its American sales goals. At a news conference in Japan, Mitsuo Kino****a, a Toyota executive vice president, said his company would also use Fuji's "various advanced technologies."

Fuji is developing advanced batteries that it says last longer than the batteries currently used in hybrids and can better handle temperature extremes.

At the news conference, some reporters suggested that Toyota was buying Fuji shares to help G.M., fearing political backlash in the United States if G.M. fell further.

Last spring, Hiroshi Okuda, Toyota's chairman, expressed worries about that possibility, saying Japanese carmakers should give Detroit's struggling carmakers some "breathing room." A few weeks later, Toyota raised its prices slightly in America, just as G.M. and Ford were offering deep "employee discounts."

But yesterday, Mr. Kino****a, the Toyota executive, stated flatly: "We absolutely do not have help for G.M. in mind."

With the Subaru deal, Toyota will control about half of Japan's car market.

James Brooke contributed reporting from Tokyo for this article and Jeremy W. Peters from Detroit.