Fiat’s Road to Ownership of the Chrysler Group

by Patrick Rall

When Fiat SpA took control of the Chrysler Group in 2009, the United States government issued Fiat with a 20% ownership of the total Chrysler operations.  With that first 20%, came a group of goals that the US Treasury set for the Chrysler Group/Fiat. As the automaker reached each of the goal levels, Fiat would get an extra 5% for a total of 15% more from the US government.

This would bring Fiat to a 35% ownership of the Chrysler Group, but
shortly after the initial merger, Fiat and Chrysler CEO Sergio
Marchionne announced that they wanted Fiat to own a controlling 51% of
Chrysler by the end of 2011.  They would achieve this, in theory, by
hitting on all of the requirements for the US Tresury to hit 35%, then
they would purchase the final 16% needed from the US and Canadian
governments to reach their desired 51%.

The first few goals set by the US government were reached quickly, as
Fiat and Chrysler hit certain foreign market sales goals, but the final
5% from the feds is the toughest – as this goal requires the Chrysler
Group to sell a vehicle in the US market that hits the 40mpg mark with
the help of Fiat architecture.  Fiat has technology to reach those
numbers but there is no current vehicle set to receive that fuel-sipping
technology, so Fiat woudn’t be able to grab that last “free” 5%.

However, on Tuesday May 24th, 2011, the Chrysler Group and Fiat held a
press conference to announce that they had acquired the funds to pay off
the entire remainder of the 2008 government “bailout loans”.  With that
payment of $5.9 billion to the US government and $1.7 billion to the
Canadian government, Fiat effectively raised their stake in Chrysler to
46% (+/-1%); leaving the US government holding 6.6% and the Canadian
federal and provincial governments holding an additional 1.7%.  This put
Fiat well within striking distance to get their last free 5% from the
feds for building a Chrysler product that yields 40mpg, but Marchionne
didn’t want to wait to have a controlling interest in the Chrysler
Group.

On Friday, May 27th 2011, Fiat announced that they planned to buy the
final 6.6% of Chrysler held by the US government, and on June 3rd, Fiat
and Chrysler announced that a deal had been reached.  Fiat paid the US
Treasury $560 million for their final 6.6% – raising Fiat’s ownership of
the Chrysler Group into the range of 52% (+/-1%).  At that point Fiat
had their controlling portion of Chrysler and there was no need to rush a
40mpg Chrysler or Dodge product to market.

But the Italian automaker wasn’t done yet.  A week after Fiat bought the
last of the Us government’s stake in Chrysler, the company offered the
Canadian government $125 million for their final 1.7%.  This move has
not yet been approved by the Canadian government but should the two
parties come to an agreement – plus the 5% slated to go to Fiat when the
40mpg Chrysler product hits US streets – Fiat will hold just shy of 60%
of the Chrysler Group.