Fiat refrained from exercising an option to sell its car unit to General Motors when it came due yesterday, saying it would wait at least until the end of talks to settle a spat over the put's validity.
Fiat and GM said a mediation process to sort out the dispute over the put option would end on February 1 and Fiat said it would hold off on pulling the trigger until February 2 at the earliest.
The pause suggested the two companies would hammer out a deal and avoid a lengthy, costly court case, analysts said.
GM has long argued that restructuring moves at Fiat Auto, which halved its stake in the unit to 10 per cent, ran against a deal signed in 2000 and invalidated the put. Fiat disagrees.
The US giant is keen to avoid buying another unprofitable car maker to add to loss-mired GM Europe and is widely expected to pay about €1.5 billion in cash and give Fiat a better deal from their joint ventures in exchange for cancelling the put option.
Analysts have said Fiat and GM should at least keep their joint ventures in purchasing and powertrains, which are due to save them €1 billion a year each by 2006. But some are saying now too much bad blood has built up for them to go on.
"I don't see how on one side you can love and kiss each other and on the other side see each other in a divorce court," said Gaetan Toulemonde, an autos analyst at Deutsche Bank.
Fiat said the groups were still working to make the most of the joint ventures, which have given Fiat access to GM platforms for new cars and GM access to Fiat's Multijet diesel engine in Europe, where diesel cars account for 43 per cent of sales.
Fiat added the GM spat would not hit its 2005-7 targets, which include a return to operating profit at Fiat Auto in 2006.
Under the mediation process, Fiat Chief Executive Sergio Marchionne and GM CEO Rick Wagoner had to meet face-to-face to slog out their differences over the put. They then had 10 days to hammer out a deal.
The end date of February 1 suggests they met last week but neither company would confirm any meeting.
In a swirl of speculation over how the Fiat saga will end, media have suggested Fiat Auto could be split out of the rest of the truck-to-robotics group with new investors - including the Italian government - invited in.
Welfare Minister Roberto Maroni said public sector involvement was not an option.
"The state should get out of managing companies," he told yesterday's la Repubblica newspaper. "Frankly, it's absurd to think the government could do better than management... As we've seen in the past, public intervention would be useless and harmful."
But the state hangs heavily over Fiat. GM knows that it if it buys Fiat Auto it will have to wrestle with Rome to cut jobs in Italy, where Fiat is the top private employer.
Under the 2000 deal, Fiat would still have a lot of say at Fiat Auto if GM bought it and GM would still have to do business with other Fiat units for five years after the purchase.
Fiat Auto has made an operating profit only once since 1998 and a slump in car sales dragged the whole group to a record loss in 2002, forcing a deep restructuring.
Analysts have said Fiat Auto has no equity value so GM would just have to assume its debt of €8.5 billion if the put is exercised.
Mr Marchionne wants more joint ventures for Fiat Auto but has said the GM partnership is holding him back. Some bankers have said he could go one step further and sell Fiat Auto to an Asian car maker, possibly a Chinese group in search of a brand to add to already strong production capacity.