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Fiat Ready to Raise Chrysler Stake to 30%

Italians may eventually own 51% majority.

by on Apr.06, 2011

CEO Sergio Marchionne appears ready to boost Fiat's stake in Chrysler to 30%.

Fiat is set to increase its ownership stake in Chrysler from 25% to 30%, and may soon boost that all the way up to 51%, according to industry sources.

The move will further cement ties between the trans-Atlantic alliance partners, and likely signals that the U.S. maker is getting closer to plans to stage an IPO that would return it to public trading – helping pay off its federal bailout in the process.

Fiat was granted a 20% stake in Chrysler following the American carmaker’s emergence from bankruptcy in mid-2009.  Government overseers then laid out a series of hurdles that would permit the Italians to boost their holdings in three 5% increments – and eventually add another 16% stake – for a potential total of 51%.

The first hurdle was cleared in January, with the launch of a new, fuel-efficient four-cylinder engine at the Chrysler plant in Dundee, Michigan.  That engine is currently being used for the Fiat 500 microcar but will have additional applications later.  This brought Fiat’s holdings to 25%.

The jump to 30% will come when two more objectives are met in the coming weeks, notes the Detroit Free Press.  First, Chrysler needs to report at least $1.5 billion in sales outside North America, where the vast majority of its business has traditionally been based.  But it must also line up an overseas distribution network.  Fiat has been aggressively signing up dealers and soon expects to have Chrysler represented by at least 90% of its Latin American retailers.

To get to 35%, the partners need to get to market with a product that gets a minimum 40 mpg in combined City/Highway driving.  Sergio Marchionne, who serves as CEO for both Chrysler and Fiat, has promised that by year’s end.

The final bump, to 51%, would be achieved by paying off the outstanding Chrysler debt to the U.S. and Canadian treasuries, a total of $7.2 billion.  Marchionne appears anxious to achieve that target – if for no  other reason than he believes that Chrysler is paying too high an interest rate.

Marchionne has not said whether he would wait until Fiat holds a majority stake before initiating the long-awaited Chrysler IPO.  The executive was encouraged by the success of the General Motors initial public offering, last November.  But in the wake of soaring fuel prices and other concerns automotive stocks, in general, have been faring poorly in recent weeks.  GM has notably been trading below the $33 IPO price.

Late last month, Marchionne outlined an optimistic scenario for Fiat and Chrysler, projecting the pair will see a big bump in revenues – to $141 billion by 2014.  But during Fiat’s stockholder’s meeting, the Canadian-educated executive also drop broad hints that the Chrysler IPO, originally expected in late 2011, might be pushed into the following year.

(For more on Marchionne’s forecast, Click Here.)