Fiat: 35 percent Chrysler share set for 2011

AP News
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Posted: Oct 21, 2010 3:32 PM
Fiat: 35 percent Chrysler share set for 2011

Fiat CEO Sergio Marchionne, who also runs Chrysler LCC, said Thursday that Fiat expects to raise its stake in Chrysler to 35 percent by the end of 2011, but that hurdles remain.

Fiat expects to raise its 20 percent share to 25 percent with the introduction of the iconic Fiat 500 city car to be launched in the United States with Fiat's MultiAir engine technology in January. Marchionne said that 5 percent increase should take effect in the fourth quarter of this year, or first quarter of next.

The second 5 percent increment will be for the introduction of a car that gets 40 miles per gallon, sometime by the end of 2011, the CEO told a conference call after reporting third-quarter earnings of euro170 million ($236 million).

The third 5 percent increment is for the international distribution of Chrysler products, which Marchionne said was related to sales in Latin America.

"Fiat is technically in compliance with that requirement. The execution of that obligation is something which is fraught with difficulties," Marchionne said, due to rules governing management of the dealership network in Brazil.

Fiat is working with U.S. officials, who set the terms for the stake increases when Fiat took the initial 20 percent share in mid-2009, to find a solution or a replacement of the condition. Fiat took a 20 percent share in Chrysler after it emerged from bankruptcy in exchange for clean-engine and small car technology, as well as management know-how.

Marchionne said he expected some resolution by the end of this year, and that the 5 percent increment would be triggered along with the 40 mph car.

Fiat also has the option of buying an additional 16 percent stake in Chrysler, for a total 51 percent share, but that is conditional also on the repayment of Chrysler debt to the U.S. government.

Marchionne said the board had not yet decided if Fiat would take the additional stake.

"It may very well be that Fiat in its assessment of ongoing profitability of Chrysler may consider it to be a wise investment ... because of the inherent value generation associated with Chrysler. I can tell you right now, I am not at that stage. I am not even playing with that option," he said.

The CEO said it would depend on Chrysler's capital structure over the long term and on the timing of a potential public offering. He has said a Chrysler IPO is expected in the second half of 2011.

In addition to the four-cylinder MultAir engine, Fiat is considering introducing the iconic Fiat 500 with the new two-cylinder Twin Air engine, Marchionne said. "It is the greenest engine we have," he said.

The diminutive 500 is the only Fiat-branded car bound for the U.S. market.