CEO Sergio Marchionne says Fiat could wind up with 51% of Chrysler before the American maker's IPO, planned for late 2011.
Fiat may take a majority stake in its U.S. ally, Chrysler Group LLC, said Sergio Marchionne, who serves as chief executive of both the Italian maker and its American partner.
The move could come even before the planned Chrysler IPO, which is expected to take place sometime late in 2011, the executive suggested, during an appearance at the Milan stock exchange, this morning. Fiat took a 20% stake in Chrysler following its emergence from Chapter 11, in May 2009 – and if it meets specific targets set by the White House that could increase to as much as 35%.
But the maker could also pay off the loans it has received from the U.S. and Canadian governments ahead of 2013 – which would increase the maker’s stake by another 16%, potentially bringing Fiat’s total stake in Chrysler up to as much as 51% prior to the IPO.
“There will be an advantage if that happens,” said the Canadian-educated Marchionne, who said “it is possible” Fiat will take its stake over 50%, though he also cautioned, “I….don’t know whether it is likely.”
Getting the government loans repaid ahead of time would be one of the targets the U.S. and Canadian governments have set for the maker. Fiat could also increase its stake, in 5% increments, for such things as boosting Chrysler’s overseas sales, and increasing the fuel economy. Fiat has already begun moving to meet those targets. It is introducing a U.S. version of the high-mileage Fiat 500, for example, and will be using its own global distribution network to build demand for Chrysler products.
What does not seem to be in store, however, is a full merger of the two companies, Marchionne stressed. Instead, the Italian-born executive appears to be following a strategy similar to that taken by Carlos Ghosn, who serves as CEO of both Nissan and its French partner Renault. Those two makers have formed a profitable and flexible Euro-Asian alliance that allows them to closely coordinate product development and other business strategies – even while going in different directions where necessary.
Ghosn has taken steps to expand the Renault-Nissan Alliance, forming a more limited partnership with, among others, Daimler AG. Marchionne had hoped to do something similar and briefly made a bid to take a controlling stake in General Motors’ European Opel subsidiary, in 2009. GM ultimately decided to keep Opel a wholly-owned subsidiary.
Under Marchionne, Fiat itself has been undergoing an extensive transformation. The executive’s appearance at the Milan stock exchange marked the official start of trading for Fiat Industrial SpA, the truck and tractor unit spun off last April. The core of the 111-year-old Fiat will now, under Marchionne, focus exclusively on its automotive operations.
As for an IPO, Marchionne recently said he expected to stage the much-awaited Chrysler initial public offering sometime in late 2011. He has also said he expects Chrysler’s prospects to be enhanced by the response to the General Motors IPO, last November. GM boosted its share price to $32 just before the initial offering, reflecting the market’s strong interest. Since then, share prices have risen sharply, and some analysts believe GM could eventually reach $50 a share.