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Fiat could dump Chrysler over IPO plan dispute

Sergio Marchionne (L), head of carmakers Fiat and Chrysler, and Fiat chairman John Elkann attend a presentation at the Paris Motor Show on September 2...
Sergio Marchionne (L), CEO of carmakers Fiat and Chrysler, and Fiat chairman John Elkann attend a presentation at the Paris Motor Show on Sept. 27, 2012. Elkann and Marchionne have made no secret of their opposition to an IPO and Fiat might abandon its alliance with Chrysler over the issue.Antoine Antoniol / Getty Images, file

The trans-Atlantic relationship between automakers Chrysler and Fiat might be coming apart now that Chrysler has filed for an initial public offering.

The IPO offers some deep insight into the turnaround at the U.S. company that has made significant gains since emerging from Chapter 11 bankruptcy four years ago, but which still has a number of serious challenges to deal with as it continues to merge its operations with those of Italian-based Fiat SpA.

Among other things, the filing reveals some of the plans in the works for new vehicles aimed at filling the numerous gaps in the Chrysler line-up, including a “first ever” small crossover-utility vehicle now under development.

But it also raises the possibility that Fiat could abandon its alliance with the U.S. automaker, a relationship it launched in 2009 after Chrysler came back from insolvency with the help of billions of dollars in federal aid.

“Fiat has informed us that it is reconsidering the benefits and costs of further expanding its relationship with us,” Chrysler warned in its S-1 filing with the U.S. Securities and Exchange Commission.

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Chrysler announced its planned stock offering late Monday after a long debate over whether to go public again – for the first time since the company merged with Germany’s Daimler-Benz in 1998 – or complete a takeover by Fiat. But the latter approach has been put on hold due to a dispute over the value of shares held by the United Auto Workers Union’s retiree health care trust, or VEBA.

Fiat currently holds a 58.5 percent stake in Chrysler while the union retains a 41.5 percent stake. Under terms of the 2009 federal bailout of the U.S. automaker, the Italian company has the right to purchase the remaining shares in 3.3 percent tranches. But with a wide gap between what the two sides say the remaining shares are worth, and the dispute being analyzed by a Chancery Court in Delaware, the final resolution could be handed to Wall Street.

Maybe. "Although a registration statement has been filed there can be no assurance that an offering will take place," Fiat cautioned in a statement issued from Italy.

With Sergio Marchionne, CEO of both Fiat and Chrysler hinting that the IPO could take place during the first quarter of 2014, reports from Europe suggest that the executive is worried the stock offering would complicate his plans to merge the companies into one.

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That is a critical step, to Marchionne, in creating a worldwide player that could stand up to even larger global powerhouses such as General Motors, Toyota and Volkswagen AG. And the partners are warning that Fiat might now reconsider the merits of going forward with the trans-Atlantic alliance.

The Fiat-Chrysler partnership was intended to address weaknesses both makers have to resolve in the increasingly global auto industry. Chrysler, for example, is a largely North American-focused manufacturer with a relatively limited line-up of products compared to cross-town rivals GM and Ford. Fiat, meanwhile, remains centered in Europe – which is in the midst of its worst automotive downturn in decades. It has a modest stakes in South America. But both companies desperately need to expand their presence in key emerging markets, such as China and Russia.

They also need to rapidly increase their economies of scale in order to improve margins and boost their bottom-line performance. The lengthy IPO filing reveals several steps being taken to accomplish that goal. Chrysler has been rapidly reducing the number of underlying platforms it uses as it merges product development with Fiat. The current 11 “architectures” will be reduced to nine next year even as Chrysler expands the number of key segments it competes in from four to six.

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A significant example is the Compact US Wide, or CUSW, platform that was developed jointly by the two makers. Among other new models, it serves as the foundation for the new Dodge Dart as well as the 2014 Jeep Cherokee crossover-utility vehicle. Meanwhile, a version of the platform also will be used for a variety of Fiat models.

The Chrysler IPO hints at other products in the works, notably mention of a “first ever” small crossover that also will share its platform with a new Chrysler small car. The document does not reveal which Chrysler brand or brands will get the new CUV.

(Read also: Four years after bankruptcy, Chrysler files for IPO)