Fiat zeros in on Chrysler control

FIAT is set to take majority control of American car-maker Chrysler Group by the end of this year, provided it delivers on a promise to pay back government loans and meet other targets stipulated by the Obama administration.

The Italian company has struck a deal with other Chrysler shareholders to pay $US1.27 billion ($A1.18b) to exercise an option for a further 16 per cent share of Chrysler, taking its stake in the company from 30 per cent to 46 per cent by the second quarter of this year, as long as pays back $US7.53 billion ($A7b) in US and Canadian government loans.

If Chrysler also meets a requirement to build a Fiat-based 40-mile-per-gallon (5.66 litres per 100km) car in the US, the governments will hand over another five per cent share free of charge.

This would take Fiat’s share of Chrysler to 51 per cent by the end of this year, creating a new global motor company two years ahead of the original 2013 target date.

Chrysler was effectively sold to Fiat by the US government in mid-2009 after the Detroit-based company emerged from chapter 11 bankruptcy.

However, the Turin-based company cannot take more than a 49 per cent stake until it pays back in full the government loans that were needed to resuscitate it.

Fiat is said to be negotiating with a number of American banks to refinance the debt so it can pay out the government loans – a move it expects to complete by June.

Fiat chairman John Elkann described the moves as an historic step for both Fiat and Chrysler and “a source of great satisfaction and pride for both”.



“Fiat, together with Chrysler, will create a stronger automobile group, with a full range of products, present in every market around the world and able to compete with the best,” he said.

Fiat CEO Sergio Marchionne said Fiat had chosen to accelerate the pace of the creation of a single group to take advantage of the synergies of an “efficient and competitive global automaker, possessing advanced technologies and the determination to establish itself as a leader in the sector”.

“Chrysler is undergoing an extraordinary industrial and financial turnaround and Fiat is ready to take control, in order to bring even greater stability and strength to the relationship in the interests of both,” said Mr Marchionne.

Analysts quoted by Automotive News say Fiat will save at least $US400 million by exercising the call option in the second quarter instead of later quarters, because the amount to be paid is linked with Chrysler’s profitability, which is said to be growing.

Most of Chrysler – 59.2 per cent – is currently owned by a healthcare trust managed by US car manufacturing union United Auto Workers.

Ultimately, the new company is expected to be floated on the New York stock exchange, as General Motors was last year.