Fiat SpA is planning to increase its Chrysler LLC Group stake to 30 percent in the next few weeks, according to insider sources quoted by Bloomberg news. The Italian company, which currently holds a 25 percent stake in Chrysler, will get an additional 5 percent from the U.S. government after it will meet two performance criteria.
The first condition is that 90 percent of Fiat’s Latin American dealers must offer Chrysler vehicles as well. To satisfy this request, Fiat CEO Sergio Marchionne plans to sell Chrysler models rebadged as Fiats in Brazil, Latin America’s largest market, where the Italian brand holds the number one spot.
In doing so, Fiat would also save money by avoiding the cost of introducing the Chrysler brand in Brazil and by sidestepping negotiations with dealers on Chrysler contracts. Around 550 of Fiat’s 700 Latin American dealers are in Brazil, while Chrysler has just 35 dealerships.
The second demand of the U.S. government is for Chrysler to have $1.5 billion in revenue outside North America, a condition Fiat has already met. The Italian carmaker will get the additional 5 percent stake in Chrysler after the Treasury Department signals that the two criteria have been met.
Marchionne aims for Fiat to acquire a 51 percent stake by the end of 2011. The first 35 percent can be obtained by Fiat without paying any cash, but the remaining 16 percent will have to be paid for. The Turin-based automaker expects to receive another 5 percent stake after meeting a requirement for Chrysler to assemble a Fiat-derived car in the U.S. that gets 40 miles per gallon.
Finally, Fiat may pay $1.14 billion for the remaining 16 percent if the deal is done in 2011 and $1.37 billion if it happens next year, with the cost being linked to Chrysler’s earnings.
By Dan Mihalascu
Source: Bloomberg
