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In the year 2000 GM and Fiat entered a strategic joint venture of shareholding and management power. The executives of both companies designed a tactical joint venture contract characterized by flexible options. Flexibility was critical for a long-term investment in the dynamic auto industry environment. A key question was how to value this flexibility. An analysis on the joint venture provides an interesting insight into the investment decision as a real option. Because of a reported high-failure rate in the joint venture deals, this paper also discusses the drivers and underlying problems that affect the operation of joint ventures. We apply real options analysis to value the strategic alliance between GM and Fiat 2 . We also highlight some of the problems related to the inherent flexibility embedded in the GM-Fiat agreement. As a result, we suggest the need to create a customized model which mitigates the conflict between the conclusion of strategic analysis and a real option approach. Working Draft Please do not Quote or Disseminate without Permission2 The GM-Fiat case serves as the basis for discussion rather than to illustrate either effective or ineffective handling of an administrative situation