CEO Sergio Marchionne announcing the pay-off of the federal bailout in May.
The federal government has severed its remaining ties to the once-bankrupt Chrysler Corp., Italian automaker Fiat buying up the Treasury’s remaining shares in the Detroit maker.
Sergio Marchionne, CEO of both Fiat and Chrysler, is expected to follow that news by announcing a global realignment next week, which will mark the next critical step in merging the two makers into a trans-Atlantic giant. Fiat has steadily increased its stake in the U.S. maker after receiving a 20% share following Chrysler’s emergence from Chapter 11 protection in June 2009.
Fiat paid $560 million for the government’s 98,461 shares, boosting its holdings by 6%. Meanwhile, it paid another $125 million to purchase the 1.5% stake held by the Canadian government, which also offered Chrysler a helping hand during its emergence from bankruptcy. In all, the Italian automaker now owns a 53.5% stake in Chrysler.
The U.S. maker received a total of $12.5 billion in assistance, starting in late 2008. Since then, the maker has repaid $11.2 billion, fully covering the bailout provided by the Obama Administration. But Marchionne has said he does not plan to cover the additional funds that were initially provided under the term of former President George W. Bush.
Fiat has steadily expanded its holdings, initially by meeting a series of hurdles set under the bailout plan. It is still expecting to acquire another 5% later this year when it launches a new Chrysler model that will deliver 40 miles per gallon. Meanwhile, it may now acquire some of the Chrysler stock held by the United Auto Workers Union’s health care trust, or VEBA. In a government filing, earlier this year, Fiat indicated it eventually may seek to acquire as much as 70% of Chrysler’s assets.
Since the partnership began, Chrysler’s fortunes have turned decidedly for the better. The maker has posted a series of monthly sales gains, including a 30% year-over-year jump in June. Chrysler reported its first post-bankruptcy profit – totaling $116 million – during the first quarter of this year and is expected to announce earnings of anywhere from $200 million to $500 million for the April – June quarter.
That report, which Marchionne will release next week, is expected to be accompanied by news of an even broader alliance between the two companies.
The various Chrysler and Fiat brands have already consolidated much of their product development efforts even as they expand global distribution ties. A number of Chrysler products are now being sold in Europe under the Italian makers various nameplates, such as the American-made Fiat Freemont and Lancia Thema, the latter a rebadged version of the newest-generation Chrysler 300 sedan.
Marchionne recently ordered the two companies to consolidate accounting operations. And next week’s announcement is expected to see an alignment of key management positions. That would likely mean single, global managers running finance and IT, for example. Some positions have already been consolidated, however, Olivier Francois, for example, serving as chief executive for both the U.S.-based Chrysler and Italian-based Lancia brands.