Fiat SpA (F) aims to raise its Chrysler Group LLC stake to 30 percent within the next few weeks after it clears two U.S. government hurdles linked to receiving the increased holding, two people familiar with the plan said.
Chief Executive Officer Sergio Marchionne plans to sell Chrysler models under the Fiat brand in Brazil to reach the first goal that 90 percent of Fiat’s Latin American dealers offer Chrysler vehicles, the people said, declining to be identified because the plans are private.
The plan would allow Marchionne to sidestep negotiations with dealers on Chrysler contracts and avoid the cost of introducing the brand in Brazil, where Fiat has the largest share of the market, one of the people said. Fiat has already met the second demand of $1.5 billion in revenue outside North America at Chrysler since Fiat took a stake in the Auburn, Hills, Michigan-based carmaker, one person said.
Fiat, which currently owns 25 percent of Chrysler, will get an additional 5 percent of the U.S. government’s holding in the company after the Treasury Department is satisfied that the two criteria have been met. The increase will help Marchionne, who runs both carmakers, reach his goal of a 51 percent stake by the end of 2011. Fiat is getting the first 35 percent without paying any cash, and must then buy the remaining 16 percent.
Fiat may pay $1.14 billion to exercise its call option on the remaining 16 percent if Marchionne makes the purchase in 2011 and $1.37 billion if he buys it next year, according to JPMorgan analyst Ranjit Unnithan, who has an “underweight” rating on the stock. The cost is linked to Chrysler’s earnings.
Fiat rose 13 cents, or 2 percent, to 6.69 euros in Milan trading today. The stock is down 0.1 percent this year, valuing the carmaker at 8.3 billion euros ($11.8 billion).
The Italian carmaker obtained a 20 percent stake in Chrysler in June 2009 as the U.S. company emerged from bankruptcy. Fiat agreed to share technology, systems and management with Chrysler in exchange for an initial 20 percent holding. It raised the stake to 25 percent in January after Chrysler received regulatory approval for an engine based on the Fiat FIRE family for manufacture in U.S.
Chrysler is close to completing a dealership agreement outside North America, with “Brazil ready to start,” Marchionne said March 30 at Fiat’s annual meeting in Turin, Italy, without providing details. A Fiat spokesman declined to comment today on the carmaker’s Latin American distribution plans. Treasury spokesman Mark Paustenbach declined to comment.
Fiat leads this year in Brazil with a 22.3 percent share of the car and light truck market through mid-March, according to data from Brazilian dealers association Fenabrave. Wolfsburg, Germany-based Volkswagen AG is second with 21.8 percent and General Motors Co is third with 18.2 percent. Fiat is targeting fast-growing economies to counter losses in Europe.
Fiat has 700 dealers in Latin America, with 550 in Brazil, while Chrysler has just 35 dealerships. The automakers already plan to build Dodge Journey sport-utility vehicles at a Mexico factory that will be rebadged as the Fiat Freemont for the Brazilian market.
Fiat expects to receive another 5 percent stake by the fourth quarter after meeting a requirement for Chrysler to assemble a Fiat-derived car in the U.S. that gets 40 miles per gallon, Marchionne said last week. Fiat has an option to buy the remaining 16 percent needed to get to 51 percent after repaying Canadian and U.S. government loans.
A planned Chrysler share sale may be pushed into next year so that the carmaker is “ready to be a public company again,” Marchionne said last week. The CEO said in January he expected a Chrysler IPO in the second half. The sale depends on the need for more liquidity at Chrysler and the desire of the United Auto Workers union’s retiree health-care trust to sell part of its stake, he said.
Marchionne is pushing Chrysler this year to increase global sales by 32 percent and post its first net income since exiting bankruptcy reorganization in 2009. The automaker through February reported a 14 percent gain in global sales.
Marchionne this year shifted Fiat’s truck and tractor units into a separate company to focus on carmaking and foster more auto alliances. Fiat’s assets, after the spinoff of Iveco SpA’s trucks and CNH Global NV’s tractors into Fiat Industrial SpA, include the Maserati and Ferrari luxury brands.