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Fiat to buy remaining US stake in Chrysler

Italian automaker Fiat SpA said Friday that it will buy the Treasury's remaining stake in Chrysler Group LLC, freeing the automaker of U.S. government ownership.
/ Source: The Associated Press

Italian automaker Fiat SpA said Friday that it will buy the Treasury's remaining stake in Chrysler Group LLC, freeing the automaker of U.S. government ownership.

The Turin, Italy-based company notified the U.S. Treasury that it will exercise an option to buy the government's 6 percent stake. The price will be negotiated within 10 business days, or by around June 10.

When the sale would happen remains unclear. But Fiat is moving quickly to take a controlling stake in Chrysler, which it has run since the company left bankruptcy protection in June of 2009.

Chrysler has made a remarkable turnaround. Before bankruptcy, the automaker was nearly out of cash and needed $10.5 billion in U.S. government money to survive. The company made a first-quarter net profit of $116 million and is forecasting 2011 earnings of $200 million to $500 million. Under the leadership of Fiat CEO Sergio Marchionne, the company has cut costs and revived its sales by refurbishing most of its lineup of Jeep, Chrysler, Dodge and Ram vehicles.

Buying out the government would give Fiat 52 percent ownership of Chrysler. That's likely to rise to 57 percent before the end of the year when Chrysler begins producing a 40 mpg (17 kpl) small car in the U.S.

Fiat received a 20 percent stake in Chrysler after the bankruptcy in exchange for management expertise and technology. The Italian automaker has gradually raised its stake by meeting benchmarks set by the government. Last week it paid about $1.3 billion to buy another 16 percent of the company.

On Tuesday, Chrysler repaid a total of $7.6 billion in loans from the U.S. and Canadian governments by refinancing them through a combination of bank loans, bond sales and the investment from Fiat.

Even with the loan repayment, the government has yet to recover about $2 billion of the $10.5 billion in bailout money. Fiat's stock purchase will help some, but the government has conceded it will not recoup all of the money. Some of the cash went to the old Chrysler, which was split off from the new one in the bankruptcy proceedings.

Fiat could own more than 70 percent of Chrysler if it exercises options to buy part of the stake now held by a United Auto Workers retiree health care trust fund.

Friday's announcement was seen as good news in Washington, where the bailouts of Chrysler and General Motors have been criticized as interference in the free market.

"Not long ago Chrysler, and hundreds of thousands of jobs, were in danger of vanishing," U.S. Sen. Debbie Stabenow, a Michigan Democrat, said in a statement. "Now Chrysler has returned to profitability, keeping even more people employed than expected and is again a viable, independent company."

Gerald Meyers, a professor at the Stephen M. Ross School of Business at the University of Michigan and former CEO of American Motors Corp., said Marchionne was able to turn Chrysler around far faster than anyone expected. Now, he's getting control of a large company for relatively little money.

"It appears to be a steal now, but nine months ago it was a gamble," Meyers said.

There still are some risks.

Chrysler now desperately needs small and midsize cars that are competitive with those from Ford and General Motors, Meyers said. And Marchionne must come up with the capital for new products at both Fiat and Chrysler.

Meyers suggested that buying out the government allows Fiat to escape from government-imposed executive pay limits.

Friday's announcement caps a huge week for Chrysler and Fiat. And next week, on June 3, President Barack Obama is scheduled to visit a Jeep plant in Toledo, Ohio, to talk about the success of government loans that saved Chrysler.

Union leaders at Chrysler's two Toledo plants are hoping the company will announce added investment and new vehicles for at least one of the plants. Chrysler now makes the Jeep Wrangler off-road vehicle and the Jeep Liberty and Dodge Nitro small SUVs in Toledo.

Union Bargaining Chairman Dan Henneman says leaders are hoping the company will announce plans to build new versions of the Liberty and Nitro, and perhaps a new compact or midsize SUV or car at the Toledo North plant.