Tag Archive | "Fiat"

Fiat To Acquire Remaining Chrysler Shares

Detroit – Fiat S.p.A. (Fiat) announced an agreement with the VEBA Trust1, under which its wholly owned subsidiary, Fiat North America LLC (FNA) will acquire all of the VEBA Trust’s equity membership interests in Chrysler Group LLC, representing the 41.4616% of Chrysler Group not currently held by FNA. The transaction is expected to close on or before January 20, 2014.

In consideration for the sale of its membership interests in Chrysler Group, the VEBA Trust will receive aggregate consideration of U.S.$3,650 million consisting of:

  • a special distribution payable by Chrysler Group to its members, in an aggregate amount of approximately $1.900 million (FNA’s portion of the special distribution will be paid by FNA to the VEBA Trust as part of the purchase consideration); and
  • at closing, FNA will pay the remainder of approximately $1.750 million in cash purchase consideration to the VEBA Trust.

Fiat expects to fund the U.S.$1.750 million in cash from available cash on hand. Chrysler Group expects to fund the special distribution from available cash on hand.

Contemporaneously with the transactions described above, Chrysler Group and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) agreed to a memorandum of understanding under Chrysler Group’s existing collective bargaining agreements to provide for additional contributions by Chrysler Group to the VEBA Trust of an aggregate of $700 million in four equal annual installments. The initial payment will be made on closing of the transaction with Fiat, and additional payments will be payable on each of the next three anniversaries of the initial payment. Chrysler Group expects to fund the initial contribution to the VEBA Trust from available cash on hand.

In consideration for these contributions, the UAW will agree to certain commitments to continue to support the industrial operations at Chrysler Group and the further implementation of the Fiat-Chrysler alliance, including to use best efforts to cooperate in the continued roll-out of Fiat-Chrysler World Class Manufacturing programs, actively participate in benchmarking efforts associated with implementation of these programs across all of Fiat-Chrysler manufacturing sites to ensure objective performance assessments and provide for proper application of WCM principles, and actively assist in the achievement of the Group’s long-term business plan.

“I have been looking forward to this day from the very moment that we were chosen to assist in the rebuilding of a vibrant Chrysler back in 2009,” said John Elkann, chairman, Fiat. “The work, commitment and achievement I have witnessed from Chrysler over the past four and a half years is nothing short of exceptional, and I take this opportunity to officially welcome each and every one of the people in the Chrysler organization to the integrated Fiat-Chrysler world.”

Sergio Marchionne, CEO, Fiat and chairman and CEO, Chrysler Group, said, “In the life of every major organization and its people, there are defining moments that go down in the history books. For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments. I will be forever grateful to the leadership team for the support and unwavering dedication shown to the integration project that today has taken its final shape. The unified ownership structure will now allow us to fully execute our vision of creating a global automaker that is truly unique in terms of mix of experience, perspective and know-how, a solid and open organization that will ensure all employees a challenging and rewarding environment.”

As part of the transactions, FNA and the VEBA Trust will agree to dismiss with prejudice the current proceedings before the Delaware Court of Chancery with respect to the interpretation of the call option agreement pursuant to which Fiat has, through FNA, exercised three tranches of a call option to acquire membership interests in Chrysler Group held by the VEBA Trust. All of these membership interests will be acquired by FNA in connection with the transactions described above.

Given the funding arrangements for this transaction, it is not envisioned that Fiat will require equity capital to be raised via a rights issue.

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Fiat near to securing finance for Chrysler buyout

Via Reuters

Frankfurt – Italian carmaker Fiat could secure financing by May for a possible buyout of the rest of Chrysler, two people familiar with the matter said on Tuesday. Fiat is in advanced talks with banks, which are expected to conclude next month, on financing to buy the 41.5 percent of Chrysler which is held by VEBA, the United Auto Workers’ retirees’ healthcare trust, the sources said.

Fiat is looking to raise roughly 3 billion euros ($4 billion) in new financing, said one of the sources, and is hoping to strike a deal with VEBA by early July. Fiat’s chief executive Sergio Marchionne wants to merge the two carmakers to create the world’s seventh-largest auto group, tapping Chrysler’s cash flow to offset Fiat’s losses in Europe and building economies of scale. A hearing in a U.S. court on Thursday could shed light on Chrysler’s price tag, which is the subject of a legal battle between Fiat and VEBA.

Earlier this month Marchionnne said the automaker may need to raise capital in the medium- to long-term after the Chrysler buy, adding Fiat had enough cash to avoid a capital increase for the purchase itself. But later the same day he told a group of reporters Fiat may need to raise as much as 2.5-3 billion euros ($3.3-$3.9 bln) in connection with the buyout, without elaborating. Fiat declined to comment.

Although Fiat has cash reserves of about 9 billion euros ($11.91 billion) as of December 31, in practice it would need to raise finance to merge with Chrysler to maintain the new group’s credit rating. VEBA’s total 41.5 percent stake in Chrysler is worth an estimated $3.5-$4 billion, according to analysts.

In January VEBA said it would exercise its right to sell part of its Chrysler stake in an initial public share offer (IPO), and Chrysler asked banks to submit pitches for the offering in April. Bankers have been asked to prepare a “dual-track” sale leading either to the flotation of Chrysler shares owned by VEBA, or an agreed buyout of VEBA’s stake by Fiat, people familiar with the matter have said.

Marchionne has made no secret of his desire to merge the two automakers and avoid an IPO, but has said he would be open to a market listing if Fiat and VEBA could not reach a deal. “The goal clearly is to resolve the matter this year,” one of the sources on Tuesday said, adding that IPO preparations were already underway.

The U.S. court hearing this week could shed light on how far apart the two sides are from an agreement on price, and possibly provide the catalyst to start buyout talks and avoid an IPO, the sources said. At issue in the court dispute is the price Fiat should pay for a part of VEBA’s Chrysler stake which is subject to a call option, with the two sides at odds over how to interpret a 2009 deal giving Fiat the right to buy 16.6 percent of Chrysler from VEBA in five stages.

While no final ruling is expected on Thursday or in the coming months comments from the judge may help bridge the gap between the two positions and accelerate out-of-court talks on a broader buyout deal, said one of the people familiar with the matter. “The April 25 hearing will likely give indication if there is a room for a possible agreement,” the person said.

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Group 1 Buys GM Dealer, Opens VW and Fiat Stores

HOUSTON — Group 1 Automotive Inc. announced the acquisition of David Taylor Cadillac Buick GMC in Houston and the opening of two new Volkswagen dealerships in the San Diego and Beaumont, Texas. The dealer group also announced the opening of Sterling McCall Fiat in Houston.

“The addition of these six franchises demonstrates our ongoing efforts to grow our business while further diversifying our brand mix,” said Earl J. Hesterberg, Group 1’s president and chief executive officer. “We are especially excited about increasing our partnership with Volkswagen of America following our successful acquisition of Metro Volkswagen in the Dallas market earlier this year.”

In total, the six franchises are expected to generate $188 million in estimated annual revenues, company officials said. David Taylor Cadillac Buick GMC is expected to add about $110 million in estimated annual revenues and complements the 11 existing dealerships that Group 1 operates in the Houston-Metro market area, reported F&I and Showroom magazine.

The Volkswagen Kearny Mesa and Beaumont franchises were awarded to Group 1 by Volkswagen of America. They represent new operating locations for Volkswagen in those markets, according to Group 1. The company anticipates that the two dealerships will add approximately $73 million in estimated annual revenues.

In August, Group 1 opened Sterling McCall Fiat in Houston, which is expected to generate $5 million in estimated annual revenues, according to the company. The three awarded franchises will be located in existing facilities alongside current operations and will be modified to the manufacturer’s image requirements.

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Pay For Fiat’s Marchionne Down In 2010 To $4.8M

Fiat SpA Chief Executive Officer Sergio Marchionne received $4.77 million (3.47 million euro) in total compensation last year, according to the Italian automaker’s annual report.

Marchionne is also CEO of partner Chrysler Group LLC, which, as a private company, is not required to disclose executive salaries. Spokesman Gualberto Ranieri said Marchionne gets a small stipend as a member of Chrysler’s board but does not draw a salary as chief executive.

“The man works exceptionally hard, crisscrossing the globe, managing two companies,” said analyst James Bell of Kelley Blue Book in Irvine, Calif. “He is pushing his philosophies and work ethic into Chrysler and employees speak highly of him.”

Ranieri noted Marchionne’s pay from Fiat will likely continue to lag those of top executives at Ford Motor Co. and General Motors Co., which have yet to disclose 2010 compensation figures, reported The Detroit News.

In 2009, Ford CEO Alan Mulally’s compensation totaled $17.9 million, and Marchionne earned about $6 million from Fiat.

GM has said CEO Dan Akerson will be paid about $9 million annually in total compensation, the same as his predecessor, Ed Whitacre Jr.

There is a $500,000 salary cap on Chrysler’s top 25 executives as one of the conditions of its government bailout. Fiat executives who have a management role with Chrysler as well can continue to be paid by Fiat.

In Italy, Marchionne earned a base salary of $4.2 million (3.05 million euro) last year, unchanged from 2009. But his compensation declined overall, in part because he earned a $1.87 million bonus in 2009, but was not paid a bonus in 2010.

In 2006, the Fiat board approved an eight-year stock option plan for Marchionne, including 5 million in options that could be redeemed over four years at 13.37 euro if performance targets were met.

Marchionne started 2010 with 19.42 million options, but many expired and he ended the year with 16.82 million. He has until November 2016 to exercise them at an average price of 9.09 euro, higher than today’s trading price of about 7 euro.

Marchionne’s term as CEO of Fiat expires in 2012. He has said he will not continue to hold the top job at both automakers indefinitely but has not said which set of responsibilities he plans to give up.

Chrysler recently provided performance awards to its workforce: $750 on average for unionized hourly employees and $10,000 on average to salaried employees. The top 50 earners did not receive a bonus.

Chrysler lost $652 million in 2010, but made $763 million on an operating basis.

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Chrysler Wants Dealers to Avoid Haggling When Fiat Returns to U.S. Market

Chrysler Group LLC wants dealers to avoid haggling with shoppers over the price of the Fiat 500 when reintroducing its parent company’s brand to America, betting that will make young customers more comfortable in showrooms.

“The pricing is the pricing,” said Laura Soave, head of the Fiat brand in North America. “The younger generation doesn’t haggle. They don’t feel comfortable with it. They hate the experience.”

Dealers have been given advertising standards that include prohibitions on promoting vehicles for less than the manufacturer’s suggested retail price, Soave said during an interview this week in San Diego. While automakers typically can’t prohibit discounts, the company limited the number of U.S. Fiat franchises to minimize competition among dealers, reported Bloomberg.

Chrysler, operated by Fiat SpA, is bringing the 500 and the Italian automaker’s namesake brand to the U.S. market at the same time as it prepares to sell a redesigned Chrysler 300 flagship sedan. The Auburn Hills, Michigan-based automaker may report a fourth-quarter loss of $99 million on Jan. 31, the average of three analysts’ estimates.

The vehicles are among 16 models Chrysler has refreshed or redesigned in the past year, most of which are just going on sale.

The 500 and redesigned 300 “really represent that this company is coming together,” said Rebecca Lindland, an industry analyst with IHS Automotive.

The automaker is more than one year into a five-year turnaround that’s supposed to return the company to profitability this year.

Clam-Shaped Hood

Fiat has already sold 500,000 of the 500 cars since 2007 in other parts of the world. The small car and its clam-shaped hood evoke the 500’s iconic design of more than 50 years ago.

Unlike the original, the small engine is in the front of the car. Engineers also worked to update the new 500 to U.S. tastes, including the addition of an automatic transmission, glove box and cup holders.

Early buyers of the 500 will have a greater interest in the manual transmission, which will get 33 mpg in combined city and highway driving, while eventually the majority of buyers will prefer the automatic transmission, Soave said.

Younger drivers “never learned how to drive a manual and they have no interest in driving a manual,” she said.

The Fiat 500, already being made in Mexico, will start at $15,500, not including the destination charge. Chrysler has said it expects to sell 50,000 of the cars in North America. Company executives expect to make additional money on the sale of accessories.

Demonstration units have begun arriving in showrooms, she said, and a marketing push is planned for March.

Customer Service

Early next month, Chrysler is bringing together about 300 people from the 130 U.S. Fiat dealerships for special training in handling customers and selling the car which can be configured in 500,000 ways, Soave said.

Dealers “need to be able to take the customers and show them how to accessorize the vehicle,” she said.

The sales “consultants” will take on non-traditional roles, including being the customer’s contact point for vehicle service, she said.

Carl Galeana, who will open Fiat franchises in Michigan and Florida, said he’s seeing a lot of excitement for the 500.

“The passion for a Fiat is much bigger than I thought,” he said in a telephone interview.

Like Saturn

Chrysler’s efforts to set up Fiat reminded him of how the predecessor of General Motors Co. went about setting up Saturn, Galeana said. He was a Saturn dealer until the Saturn brand was ended as part of GM’s bankruptcy in 2009. The Saturn experience included no-haggle buying.

“Customers, quite frankly, liked that process,” he said.

No-haggle policies can be effective if consumers feel like they’re getting a good deal already, Lindland, the industry analyst, said.

“Taking that haggling aspect out of it is a really smart move,” she said.

Chrysler expects the market for small cars in North America to more than double to 896,000 vehicles in 2014 from 442,000 last year, Soave said.

Consumer interest in small cars may not keep up with the number of new entries.

“The 500, right now I think, is more symbolic” for the return of the Fiat brand, Jeremy Anwyl, chief executive officer of automotive website Edmunds.com, said in a telephone interview. “I don’t see it as a massive volume car.”

While Soave is busy preparing dealers for a small car, Chrysler is also preparing them for the 300 large sedan.

New Book

Chrysler executives call the 300 and the 200 convertible “Chapter 2” of rebuilding the namesake brand. The first chapter was unveiled in November with the redesigned and renamed 200 mid-sized sedan — previously called Sebring — and the refreshed Town & Country minivan.

This is “our opportunity to tell the world that you don’t have to cross an ocean to get a great car,” Olivier Francois, head of the Chrysler brand, said this week in San Diego.

The new 300 starts at $27,170, excluding destination charges. The previous model’s starting price was $27,260, according to Chrysler’s website.

Chrysler’s average incentive spending on the 300 last year rose to $5,042 from $4,765 in 2009, according to researcher Autodata Corp. The industry average for passenger cars last year was $2,563.

Chrysler plans to pull back on incentive spending with the new vehicle, Francois said in an interview earlier this month.

“We choose to be very transparent,” he said. “We are going to aim for both loyal customer targets and to conquest.”

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Fiat Raises Chrysler Stake, Readies for IPO

DETROIT – Fiat lifted its stake in Chrysler to 25 percent today as CEO Sergio Marchionne prepares for an upcoming round of meetings with bankers to refinance Chrysler’s debt and to ready an initial public offering of shares.

Fiat said in a statement that it had raised its ownership in Chrysler to 25 percent from 20 percent at no financial cost under the terms of a deal that had been negotiated with the U.S. Treasury as part of Chrysler’s bailout, reported Automotive News.

The announcement, which came as Chrysler showed off new and revamped vehicles at the Detroit auto show, increases the likelihood that Fiat will own a majority of Chrysler by the end of the year.

Marchionne said he and other Chrysler executives would begin more intensive meetings with Wall Street bankers in the current quarter to prepare for an IPO expected by the end of the year.

Refinancing a priority

The immediate priority will be to develop a plan to refinance Chrysler’s bailout debt to the U.S. Treasury, Marchionne said.

“We have spent some time with the financial institutions the last two or three months and we are going to get into a much deeper discussion in the first quarter of 2011 as to how to get that done,” Marchionne told Reuters Insider.

“I am expecting that by the second quarter of this year we will have a plan that we can announce,” he said, speaking on the sidelines of the Detroit auto show.

Marchionne said it was possible that a Chrysler IPO could come before the fourth quarter, but that would depend in part on the strength of the stock market. “I think we need to do some more work before we open our trap,” he said.

Marchionne said he hoped that Fiat’s progress in restructuring Chrysler since it took control of the automaker in 2009 would silence the skeptics and win over potential investors and creditors.

Chrysler used the Detroit auto show — the industry’s largest trade show — to showcase a redesigned and re-engineered version of its 300 sedan as well as a revamped mid-size sedan now known as the 200 and a refreshed version of its minivan.

“I think we’ve proved over the last 19 months what this group can do. A lot of people were incredibly skeptical about our ability to launch all of these products within a short period of time,” Marchionne said.

Winning approval

Fiat was given management control of Chrysler and an initial 20 percent stake with the opportunity to raise its holdings to 35 percent by meeting certain performance targets set by the Obama administration.

By winning approval to build a Fiat-designed, fuel-efficient engine at a Chrysler plant in Dundee, Mich., the Italian automaker was cleared to raise its stake in Chrysler to 25 percent.

If Fiat helps Chrysler increase sales outside North America and builds a vehicle in the United States that achieves 40 miles-per-gallon in fuel efficiency, the Italian automaker can raise its stake in Chrysler to 35 percent.

Fiat recently spun off its truck and tractor division now known as Fiat Industrial. That spin-off was seen as clearing the way for the creation of a bigger trans-Atlantic auto group led by Marchionne.

Chrysler executives said they hope the second-generation 300, which had been developed in part before the automaker’s bankruptcy, would win back luxury consumers who would not have considered its vehicles in recent years.

The first-generation 300 was a smash debut for Chrysler five years ago but the automaker was criticized for not investing enough in refinements to keep it competitive with newer full-size sedans from rivals like the Taurus from Ford Motor Co.

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