Marchionne’s first transaction toward his goal of selling 6 million cars a year.
Fiat SpA bought a stake in most of Chrysler LLC’s assets, creating the world’s sixth-largest carmaker in Chief Executive Officer Sergio Marchionne’s plan to survive the recession by setting up a global alliance.
Fiat, Italy’s biggest manufacturer, will own 20 per cent of the newly formed Chrysler Group LLC and is aiming for a 35 per cent stake if certain operational goals are achieved, the companies said on Tuesday in a statement. The United Auto Workers’ union retiree health care trust fund will be the biggest owner, with 55 per cent when Fiat reaches its target holding.
The combined carmaker would have sales of 4.5 million vehicles globally, ranking just behind Ford Motor Co based on 2008 figures. Marchionne is pushing for consolidation in the auto industry because he expects only six global producers to survive the first global recession since World War II. “Marchionne will be focused on restructuring Chrysler, but he’s still looking for other possible mergers and acquisitions,” said Karim Bertoni, who manages the equivalent of $18.5 billion at Banque Syz in Geneva and doesn’t own Fiat stock.
Fiat rose 36 cents, or 4.9 per cent, to ¤ 7.79 in Milan trading, the biggest gain in five weeks. The shares have increased 70 per cent this year, valuing the carmaker at ¤9.39 billion ($13.1 billion).
The US government will hold 8 per cent of the new Chrysler and Canada will own 2 per cent, the companies said. Turin-based Fiat will help Chrysler, which has headquarters in Auburn Hills, Michigan, sell cars in Russia and Latin America, they said.
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The transaction is Marchionne’s first toward his goal of selling 6 million cars a year, the minimum he says is required to be profitable through the economic contraction. Chrysler, which shut its 22 US factories on May 1, didn’t receive any other bids for its assets.
Fiat also made a non-cash offer in May for General Motors Corp’s Opel and Vauxhall brands in Europe. Magna International Inc, Canada’s biggest car-parts maker, was chosen at the end of last month as preferred bidder for the GM Europe division and is in talks on completing the takeover.
Most of Chrysler’s operations will be shifted to the new company, excluding eight factories, dozens of pieces of real estate, equipment leases and contracts with 789 US auto dealerships. Among the agreements excluded are vehicle-assembly and wholesaling ventures in Canada and Mexico with Daimler AG, its former owner, and a contract hiring investment bank Lazard Ltd to help sell the Dodge Viper sports-car operations.
Chrysler filed for bankruptcy protection on April 30, using the reorganization to retain its strongest assets and form an alliance with Fiat. The US and Canadian governments are financing the Chrysler sale with $2 billion.
Fiat has the option of raising its stake to 35 per cent once sales and earnings targets are met. The sale will allow the US carmaker to revive its Chrysler, Jeep and Dodge brands with less debt and lower wage costs as Fiat provides technology, platforms and know-how. Fiat built just over 2 million cars last year, ranking ninth in the worldwide auto industry.
The US Supreme Court overturned objections to the transaction by Indiana state pension funds and US consumer advocates, ruling yesterday that the Chrysler creditors’ challenges didn’t meet the legal standard for an emergency stay of the deal.
Marchionne will become the CEO of the new company and Robert Kidder, former chairman and CEO of Borden Chemical Inc and Duracell International Inc, will be chairman. Jim Press, one of Chrysler LLC’s two presidents, will become deputy CEO, while Peter Fong, director of the Mid-Atlantic Business Center, will become group sales chief and run the Chrysler brand.
Michael Manley, Chrysler LLC’s international sales chief, will oversee the Jeep division and Michael Accavitti will lead Dodge, where he has been head of marketing. Richard Palmer becomes Chrysler Group’s chief financial officer, shifting from the same post at Fiat’s automotive group.
The pairing of Chrysler and Fiat brings together companies with largely different products and markets. Chrysler gets more than 90 per cent of its sales from North America through its three brands. Fiat has almost no presence on the continent.
The Italian automaker has the most fuel-efficient lineup of vehicles in Europe while Chrysler is known for V8-powered large sedans, sport-utility vehicles and pickups.
Chrysler may begin selling the first Fiat vehicles in as little as 18 months, executives at both companies have said. The combined company will build a new car in the US based on the mechanical underpinnings of Fiat’s Alfa Romeo 149 that hasn’t gone on sale yet. Chrysler also is planning to sell the Fiat 500, a subcompact similar in size to Daimler AG’s Smart minicar.
The US company may build Fiat engines in an unused section of its Dundee, Michigan, factory, Scott Garberding, Chrysler’s purchasing chief, said in court testimony.