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 (F)’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. 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.

To contact the reporters on this story: Tim Higgins in Southfield, Michigan at Thiggins21@bloomberg.net;

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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