The agreement, under which GKN will initially hold 85 per cent of a new company and Fiat the remainder, is expected to add pounds 100m to annual sales.
Fiat is out-sourcing production of constant velocity joint and drive shafts - vital parts of front-wheel-drive vehicles - to follow its strategy of concentrating on the design, development and assembly of vehicles.
Sir David Lees, GKN's chairman, said it was an important development in the company's 15-year relationship with Fiat and its Iveco truck division. 'Out-sourcing itself is not unusual. But perhaps what is unusual is the size of this agreement.'
A new company called GKN Componenti Firenze will buy an existing Fiat business now employing more than 700 people at Novoli, Florence. GKN will then be in charge of building a new manufacturing plant at Campi, outside Florence, to which the Novoli operation will be relocated.
GKN will invest pounds 50m in the venture which, when operational in about two years, will add about 10 per cent to the company's total driveline sales of pounds 1.1bn.
GKN will eventually take total control of GKN Componenti, which will provide the bulk of Fiat's driveline needs under a renewable eight-year contract. Some work will be transferred to existing GKN plants.
Th company has about 30 per cent of the market for constant velocity joints, producing them at plants throughout Europe and the US.Reuse content