Tag Archive | "Fiat SpA"

Chrysler Group Prepares to Build Small Car That May Increase Fiat Stake

Chrysler Group LLC said it plans to begin test production in the second half of this year of the small car that will trigger U.S. government requirements to increase Fiat SpA’s ownership stake.

Tooling for the small Dodge brand car goes into Chrysler’s Belvidere, Illinois, assembly plant in August, Fred Goedtel, head of Chrysler’s assembly operations, said in an interview this week in Sterling Heights, Michigan.

“We’ll start pilots in the fall” and official production begins “sometime” in the first quarter, he said.

Design work on the car, which is the vehicle Chrysler expects will trigger the final government ownership milestone, is done, Ralph Gilles, head of Chrysler design, said in an interview in Chelsea, Michigan, yesterday. “The company is really focused on it,” he said of the vehicle.

Turin, Italy-based Fiat is consolidating control over Chrysler, reported Bloomberg. Fiat is buying the U.S. Treasury Department’s final stake in the U.S. automaker, acquired as part of Chrysler’s 2009 bankruptcy reorganization. That purchase will raise Fiat’s stake to 52 percent on a fully diluted basis. Chrysler must test and commit to building a vehicle in the U.S. that achieves 40 mpg to gain another 5 percent stake.

Its deal with the U.S. and Canada allowed Fiat to gain as much as 35 percent in Chrysler without paying cash in exchange for giving management experience and technology to Chrysler and achieving various performance milestones. The 40 mpg vehicle is the final such milestone.

Fiat also exercised an option to purchase 16 percent of the Auburn Hills, Michigan-based company after Chrysler repaid the U.S. and Canadian government loans in May.

Sergio Marchionne, chief executive officer of both automakers, has said he expects Fiat will get its final 5 percent tied to the 40 mpg car by year’s end. The small Dodge car is being based on Fiat’s Alfa Romeo Giulietta technology, Marchionne has said.

Gilles said the new Dodge model’s name was decided earlier this week. He declined to provide the name.

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Fiat Won’t Risk Credit Rating Cut to Buy Chrysler Stake, Marchionne Says

Fiat SpA Chief Executive Officer Sergio Marchionne said the Italian carmaker won’t risk a credit- rating downgrade to gain full ownership of Chrysler Group LLC.

“We can’t jeopardize the rating of Fiat,” Marchionne told reporters late yesterday in Gavi, Italy, at a presentation of the Freemont sport-utility vehicle. “The easiest route” is an initial public offering at Chrysler instead of an outright purchase of the stake Fiat doesn’t currently own, reported Bloomberg.

Fiat was placed under review for a possible downgrade by Moody’s Investor Services and Fitch Ratings in April after the carmaker announced plans to raise its Chrysler stake. Standard & Poor’s lowered its long-term corporate credit rating on the carmaker to BB in February and confirmed its “negative outlook.” All Fiat’s ratings are below investment grade.

The automaker, based in Turin, Italy, last month consolidated Chrysler’s results, a sign of the rapid integration of the two since the Auburn Hills, Michigan-based manufacturer exited bankruptcy in June 2009. S&P said in April its “negative outlook” reflected the “very substantial” operating and financial risks related to increased Chrysler exposure.

A share sale at Chrysler, as opposed to a purchase of the remaining shares, would mean less direct risk exposure for Fiat. Marchionne said yesterday he’s not in talks to acquire the United Auto Workers retiree health-care trust fund’s stake in the U.S. automaker. An IPO of Chrysler isn’t on tap for this year, he added.

“The market is not there” for a share sale, he said in an interview.

Fiat fell as much as 5 cents, or 0.7 percent, to 7.28 euros and was down 0.3 percent to 7.31 euros as of 10:11 a.m. in Milan trading. The shares have gained 9.1 percent this year, valuing the carmaker at 8.94 billion euros ($12.9 billion).

Fiat, which was initially granted a 20 percent stake in Chrysler by the U.S. government, aims to hold 57 percent of the third-biggest U.S. automaker by the end of 2011. The UAW trust will have 41.5 percent of Chrysler at that time, Fiat said.

Fiat agreed June 3 to pay $500 million for the U.S. government’s remaining 6 percent stake in Chrysler, boosting its holding to 52 percent. The CEO expects to receive an additional 5 percent stake in the fourth quarter in return for developing a fuel-efficient car for Chrysler.

Fiat has also made an offer to buy Canada’s 1.5 percent holding in Chrysler for $125 million and has acquired the U.S. government’s rights to buy the shares held by the UAW’s retiree trust, also known as VEBA.

“Marchionne may wait to see how Fiat and Chrysler cash generation develops and then decide whether to buy the VEBA stake or go for an IPO,” said Massimo Vecchio, a Mediobanca Spa analyst in Milan who has an “outperform” rating on Fiat. “Strong cash flow at Fiat and Chrysler are crucial to finance the call options exercise and to enhance company value.”

Marchionne also said that a listing of Ferrari SpA, Fiat’s most profitable unit, isn’t currently on the table, while it’s “always a possibility.”

Fiat has enough liquidity and has “no urgency” to issue new bonds, Marchionne said. The Italian carmaker this week confirmed its financial targets for 2011, including net income of about 300 million euros and its plan to sell 6 million cars with Chrysler by 2014.

Marchionne is pushing Chrysler this year to raise its global sales by 32 percent to 2 million vehicles and turn an annual profit of $200 million to $500 million. Chrysler last month posted a first-quarter net income of $116 million, its first since emerging from bankruptcy in 2009. Global sales during that period increased by 18 percent.

Marchionne said that Fiat isn’t interested in buying General Motors Co.’s Adam Opel unit. German magazines Der Spiegel and Auto Bild reported on June 9 that GM is prepared to sell Opel as losses at the European division persist. Fiat was a suitor for Opel when it was for sale in 2009.

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Fiat Makes Bid for Canada’s Stake in Chrysler

VENICE — Fiat SpA Chief Executive Sergio Marchionne said Saturday the Italian auto maker offered about $125 million to the Canadian government to acquire its 1.7 percent stake in Chrysler Group LLC.

Speaking on the sidelines of an event in Venice, Mr. Marchionne said he made the offer Thursday night. The disclosure came two days after Fiat reached a deal to pay the U.S. Treasury $500 million to buy its remaining 6 percent stake in Chrysler, reported The Wall Street Journal.

Mr. Marchionne, who is chief executive of both Fiat and Chrysler, reiterated that Fiat has the financial ability to buy out the stake held by the United Auto Workers health-care trust fund but at the moment has nothing on the table.

“We acquired the U.S. Treasury stake in Chrysler also to avoid the possibility that a competitor would sit with us at the table in the future,” he added.

A spokesman for Canada’s finance minister said he was unable to comment about Mr. Marchionne’s remarks, adding Canada remains committed to selling its Chrysler stake “as quickly as feasible, while maximizing the value of our equity interests for Canadian taxpayers.”

The U.S., Canada and the health-trust fund were given pieces of Chrysler during the auto maker’s 2009 bankruptcy.

Mr. Marchionne said that the main target is now to pay the health-trust fund, a voluntary employees beneficiary association, or VEBA. “All options are on the table now, the IPO is not necessary,” he said.

Fiat’s top manager said that he plans to add about 100 dealers in the U.S. by the summer to boost sales of the Fiat 500 model. “Americans want to buy fuel-efficient cars,” he said when asked about the possible risk of selling small cars in a country accustomed to larger ones.

Mr. Marchionne said neither a merger between Fiat and Chrysler nor a decision on where to move the company’s headquarters is a priority this year. “The real issue to work on is the leadership and the integration,” he said. “We are going to make little changes in a short while. It’s going to be a busy summer,” he said, adding that the corporate governance of the company must take into account that Chrysler produces as many cars in the U.S. as Fiat does in the world. “Because of the weakness of the European markets in 2011 and 2012, Chrysler will make more cars than Fiat world-wide. This is an interesting dilemma,” he said.

When asked about Fiat-Chrysler expansion plans in Asia and a possible tie-up with Japan’s Suzuki Motor Corp., Mr. Marchionne said that the industrial relationship with the car maker is very good.

“We plan to continue our cooperation with them both on engines and platform developments,” he said, mentioning the new S4 model. He confirmed that he met with Suzuki officials a couple of weeks ago.

He also said that the Italian car maker revised its sale target in Russia to 120,000 vehicles. “We did the revision in light of the changes to the domestic market.”

Mr. Marchionne said that Fiat could issue more bonds in future months while Chrysler won’t. He reiterated that the main target is to make money and generate cash. “Never ever get to the point of reference to the banks,” he said. Mr. Marchionne also said that Fiat would seek capital—if and when necessary—on the financial markets.

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Treasury Drove Hard Bargain in Selling Chrysler Stake

WASHINGTON – Treasury Department officials held out for $500 million for the government’s 6 percent stake in Chrysler – $100 million more than what Fiat SpA initially offered to pay.

The Treasury got far more than what Fiat paid for a 16 percentage point boost in its Chrysler stake in April, when it upped its stake from 30 percent to 46 percent for $1.27 billion.

Under that scenario, Chrysler was valued at $5.1 billion. That means the Treasury’s stake would have been worth just $309 million.

The talks between Fiat and the Treasury began in earnest on Monday after Fiat notified the government of its intent to exercise its option to buy the government’s remaining equity stake. The sides were initially far apart, people briefed on the talks told The Detroit News.

On Thursday, Fiat’s latest offer was $475 million and the Treasury was holding firm seeking $500 million. In the end, Fiat agreed to $500 million and the agreement was signed around 8 p.m.

Fiat also agreed to pay $75 million for the Treasury’s option to acquire the 45 percent stake in the United Auto Workers health care trust for $5 billion. Under the deal, the Treasury will keep $60 million, and the Canadian governments will get $15 million.

The option was essentially worthless to the Treasury, since it had no plans to exercise it.

The deal now must clear antitrust approval in the United States and Europe and is expected to take 30 to 60 days to close.

Under the deal, the Treasury will have recovered about $11.2 billion of its $12.5 billion bailout – far more than most experts initially forecast.

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Chrysler’s Marchionne Says IPO of U.S. Automaker Isn’t Likely Before 2012

Chrysler Group LLC, the U.S. automaker controlled by Fiat SpA, needs more time to show strong financial results before holding an initial public offering, the companies’ top executive said.

“We need an additional track record of performance and probably a better equity market than I’m seeing today,” Sergio Marchionne, chief executive officer of both automakers, told reporters today in Toledo, Ohio.

Chrysler needs all of this year before an IPO, and there would be “no benefit” in holding one in 2011, he said.

Marchionne is pushing Chrysler this year to raise its global sales by 32 percent to 2 million vehicles and turn an annual profit of $200 million to $500 million, reported Bloomberg. Chrysler last month posted a first-quarter net profit of $116 million, its first since emerging from bankruptcy in 2009, and global sales during that period increased by 18 percent.

Marchionne’s comments came after President Barack Obama visited the Chrysler plant that builds Jeep Wrangler sport- utility vehicles. The U.S. Treasury and Fiat announced a deal yesterday for the Italian automaker to pay $500 million for the U.S. government’s remaining 6 percent stake in Chrysler.

The Treasury said it will receive an additional $60 million as part of an agreement for Fiat to acquire the government’s rights to buy the United Auto Workers retiree health-care trust fund’s stake in Chrysler. The Canadian government will get $15 million from that part of the transaction, the Treasury said yesterday in a statement.

Buying the U.S. stake will raise Fiat’s holding in Auburn Hills, Michigan-based Chrysler to 52 percent. Marchionne has said he expects to receive an additional 5 percent stake in the fourth quarter in return for developing a fuel-efficient car for Chrysler.

Chrysler wouldn’t need to go forward with an IPO if the trust agreed to sell its stake to Fiat, Marchionne said. While Fiat “technically has the cash” to do a deal with the trust, a Chrysler IPO may be “the easiest way to monetize” the fund’s stake, Marchionne said.

Fiat isn’t in negotiations to acquire the trust’s stake, Marchionne said.

“I expect to work with them to find a way for them to exit at the right time,” he said. “But neither Chrysler nor Fiat is going to be pushed into a position. We’ll do it when it’s ready.”

Marchionne said he’s not sure how the trust could remain an equity partner because it’s “not an investment fund — they need to satisfy the obligations to the retirees.”

The $500 million that Turin, Italy-based Fiat will pay the U.S. government for its remaining stake puts the value of Chrysler at more than $8 billion, Marchionne said.

Marchionne is talking with the Canadian government about buying its holding in Chrysler.

Canada isn’t “going to get a better deal than I offered Treasury” on a pro-rata basis, he said. “It’s the deal. I have no other deal.”

Canada holds 1.7 percent of Chrysler, Eileen Wunderlich, a company spokeswoman, said in an e-mail last month.

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Fiat, U.S. Set Chrysler Deal

Italian auto maker Fiat SpA has an agreement to buy the U.S. Treasury’s remaining 6 percent stake in Chrysler Group LLC, a move that would bring an end to the U.S. government’s involvement in the Auburn Hills, Mich., auto maker.

Fiat will pay the Treasury $500 million for its 98,461 shares of Chrysler and another $75 million for the right to purchase all of the 45.7 percent stake owned by the United Auto Workers union’s health-care trust fund, The Wall Street Journal reported.

The Treasury will retain 80 percent of the $75 million purchase right and share the remaining 20 percent with the Canadian government. In all, the Treasury will walk away with a total of $560 million in the deal, which is expected to close within the next 30 to 60 days following antitrust reviews.

President Barack Obama is expected to announce the deal during a planned visit Friday to a Chrysler automobile assembly plant in Toledo, Ohio.

“As Treasury exits its investment in Chrysler, it’s clear that President Obama’s decision to stand behind and restructure this company was the right one,” Treasury Secretary Tim Geithner said in a statement Thursday. “Today, America’s automakers are mounting one of the most improbable turnarounds in recent history—creating new jobs and making new investments in communities across our country.”

Acquiring the Treasury’s shares lifts Fiat’s stake in Chrysler to 52 percent while formally cutting the U.S. government’s final ties to the auto maker.

The additional right to move on the UAW health trust fund’s stake eliminates the need for Chrysler to conduct an initial public offering of shares. It is unknown at this point the value of the UAW health trust’s stake. Fiat will have to negotiate a purchase price with the trust fund, known as a voluntary employees beneficiary association.

The VEBA, which was created in 2009 to fund retiree medical benefits for 125,000 union members, retirees and their spouses, is interested in converting its shares into money as soon as possible so that it can then reinvest that money to generate a return to continue covering health-care costs. A sale to Fiat means the VEBA won’t have to wait for an IPO to divest its shares, which couldn’t take place until early 2012. The VEBA originally held a 55 percent stake in Chrysler. The stake has diluted as Fiat has purchased shares. Fiat now owns 46 percent of Chrysler.

The VEBA was designed so that the union could handle the administration of health-care costs from a fund rather than requiring the company to continue to pay these costs every year.

Treasury was given the right to repurchase the trust fund’s ownership stake under Chrysler’s 2009 bankruptcy reorganization.

Sergio Marchionne, who serves as chief executive of both Fiat and Chrysler, and Treasury officials have been working to get a deal done so Obama could make the official announcement Friday.

Obama will use the visit to highlight the recovering automotive industry which his administration helped save in 2009 when it provided bailout funding and ushered both Chrysler and General Motors Co. out of bankruptcy court.

The Chrysler news could also serve as a bright spot Friday amid a gloomy unemployment figure announcement. The data are expected to show companies hired fewer workers in May compared with April.

The outcome of Fiat’s talks with the Treasury could have implications for Canada, which owns a 1.7 percent stake in Chrysler. Canadian government officials have said during the past week they are open to selling the stake to Fiat.

The Canadian and U.S. governments took stakes in Chrysler after providing the auto maker $7.6 billion in bankruptcy loans. Chrysler formally repaid those loans last week. A spokeswoman for Canadian Minister of Finance Jim Flaherty said no decision has been reached on its shares.

The Obama administration is hoping to use the news to make the case that the auto industry bailout was a broad success as part of a broader Democratic effort to turn that into a political advantage, particularly in Midwestern states that were hard hit by the recession and could provide key support for Democrats in 2012 elections.

For Mr. Marchionne, the deal could allow him to skip a Chrysler IPO and move forward with his ambitions to combine Chrysler and Fiat into a single auto maker with a global footprint. On June 10, Chrysler will mark the two-year anniversary since its emergence from bankruptcy protection.

Treasury also hopes to sell more of its remaining 26.5 percent stake in GM this August or September in a bid to cut ties with major auto industry participants, according to people familiar with the plans. While most of the government’s money flowed to GM and Chrysler as they underwent bankruptcy reorganizations, auto finance companies and parts suppliers also received aid.

The U.S. would lose more than $10 billion on the GM rescue if it were to sell the shares at the current price, which has fallen below last fall’s $33 IPO price. GM shares were off 2 percent, or 66 cents, at $29.57 in 4 p.m. New York Stock Exchange trading Thursday.

White House adviser Ron Bloom said Wednesday the administration hasn’t settled on a price or date for selling its remaining GM shares, but he said the administration may accept a loss.

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