Chrysler/Fiat CEO Sergio Marchionne continues pursuing the integration of the two companies.
Fiat will invest $1.27 billion to increase its stake in its U.S. ally Chrysler to 46%. The Italians could yet push their holdings to 51% if they meet one last target set as part of Chrysler’s 2009 emergence from bankruptcy.
The latest move not only increases the integration of Fiat and Chrysler, but also sets up the long-discussed initial public offering that would see the Detroit maker return to public trading.
It also helps achieve the goal of Sergio Marchionne, who serves as both Fiat and Chrysler CEO, to create a powerhouse alliance capable of producing 6 million vehicles annually – the level he believes necessary to be competitive in the automotive industry going forward.
“Fiat is ready to take control to bring even greater stability and strength to the relationship in the interests of both,” the executive said from Turin, where Fiat is based.
The latest deal – expected to be completed in the second quarter of this year – will come as Fiat pays off the loans provided by the U.S. and Canadian treasuries to bail out Chrysler two years ago. Marchionne has said he wanted to find alternative funding not only to eliminate government oversight and gain a bigger stake for Fiat, but also because he felt Chrysler was paying too high an interest rate.
The bailout designed by the White House specifically called for Fiat to step in, assuming that Chrysler – unlike General Motors, which also went bankrupt in 2009 – could not survive without some sort of new partnership.
The bailout “was intentionally designed to allow Fiat control of Chrysler at some point in time,” Marchionne told analysts earlier this week, adding that by setting up the possibility the Italian automaker eventually could get a majority stake, “that defines happiness for Fiat.”
As it emerged from bankruptcy, 20% of Chrysler was given to Fiat. The bailout laid out a series of additional goals for the Italian maker to increase that to 51%. Three increments of 5% were offered for such steps as increasing Chrysler’s global sales and building a high-mileage powertrain – both moves achieved by Fiat in recent months.
A 16% increase depended on paying off – or refinancing – the government loans.
Now, a final 5% stake is within reach. And Marchionne has said he expects Chrysler to meet it by launching sales of a new 40 mpg model before year’s end.
Industry analysts believe that with a majority stake owned by Fiat, Marchionne will then call for an IPO. Late last year, the Canadian-educated executive had said he was hoping to do so by late 2011, though he has more recently expressed the possibility the public offering may not occur until 2012. That reflects several concerns, including the sharp decline in auto stocks in recent weeks.