Bloomberg reported earlier today that as the United States government works on divesting its investments in the auto industry, Fiat, S.p.A. has options to increase its holdings of Chrysler to over 70 percent. In fact, the Italian automaker might purchase the U.S. Treasury's remaining stake in the American company, during the year after its debts to the government are repaid, at least, according to a filing by Chrysler with the U.S. Securities and Exchange Commission (SEC).
Last month, Chrysler said it would be issuing new debt in order to meet its obligation to repay the U.S. government's loans, which allowed Fiat to exercise an option to raise its share in the company from 30 to 46 percent.
Dennis Virag, president of the Ann Arbor, Michigan-based Automotive Consulting Group explained that selling the U.S. Treasury's stake in Chrysler to Fiat would enable the government to end its involvement with Chrysler far more quickly than would happen if it waited for an IPO (initial public offering).
In a telephone interview with Bloomberg reporters, Virag said, "It's a two-way street: It lets the government get out of Chrysler quicker and it lets Chrysler get out from under the government quicker."
Currently, the U.S. Treasury holds 8.6 percent of Chrysler, though as the American company meets the last of three performance milestones that each net Fiat an additional five percent, that amount would be reduced.
What is that final goal? According to Sergio Marchionne, CEO of both Chrysler and Fiat, it's the construction of an American vehicle that gets 40 mpg, and it should be met this year. As to the Chrysler IPO, Marchionne has said that Chrysler may begin selling shares to the public either this year or next, so long as conditions are favorable.
Shedding more light on the Fiat-Chrysler situation is Erich Hauser, an analyst for Credit Suisse Group AG, who explained via email, "Fiat has the liquidity to buy more Chrysler if they should want to. The issue is whether it would be better to spend that money on its own autos business or on Chrysler's autos business."
An increase in Fiat's stake in Chrysler would increase the former's value by giving it greater profit from a Chrysler rebound, Virag explained.
In addition to the options already discussed, Fiat also holds one that would allow it to acquire forty percent of the original stake currently held by the UAW union's retiree health-care trust. That option is exercisable from July 1, 2012 - December 31, 2016, with amounts limited to eight percent in any six-month period.