Fiat buys U.S. and Canadian governments’ stakes in Chrysler, becomes majority shareholder

Article by Christian Andrei, on July 21, 2011

Chrysler shares that were owned by the U.S. government now belong to Fiat S.p.A. Last Thursday, the U.S. Treasury Department said that Fiat bought the government’s remaining 98,000 shares of Chrysler Group LLC for $560 million. Fiat has taken control of Chrysler since 2009 when it emerged from bankruptcy.

Because of the recession, Chrysler and General Motors Co. were brought to the brink of collapse. To rescue Chrysler, the U.S. government gave $12.5 billion to Chrysler and its financing arm.

These funds were taken from the bank bailout fund of the government that’s valued at $700 billion. Under the deal, Fiat got a 20% stake in Chrysler for taking control of the U.S. carmaker. Gradually, Fiat raised its stake in Chrysler.

With Fiat’s purchase of the remaining U.S. shares and Canada’s small stake, this means that Fiat owns 53.5% of the company (majority control). CEO Sergio Marchionne, the CEO of both Chrysler and Fiat, could now proceed with his plans to consolidate management of the companies.

There’s likely to be some controversy on where the corporate headquarters would be located. Fiat, the biggest employer in Italy, knows that U.S. government officials will be upset if the new company would have its headquarters in Turin, Italy. Since Chrysler was bailed out, it had made an incredible turnaround.

Chrysler reduced costs and improved the sales of Jeep, Chrysler, Dodge and Ram vehicles. Due mainly to these efforts, Chrysler was able to post a net income of $116 million in the first quarter. It predicts a profit of $200 million to $500 million this year.

Chrysler is slated to announce its second-quarter results this Tuesday. So far, $11.2 billion of the original Chrysler bailout has been repaid. The U.S. Treasury Department asserts that it likely won’t get back the remaining $1.3 billion.

Topics: fiat, chrysler, canada

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