Fiat SpA will have completed the measures required to increase its stake in Chrysler Group LLC next year to 35 percent, up from the current 20 percent, Sergio Marchionne, CEO of both automakers, said Thursday.
The actions required to increase Fiat's stake in Chrysler were established when the two companies formed a partnership in 2009, The Detroit News reported. They include launching the tiny Fiat 500 in the United States later this year with a fuel-efficient four-cylinder engine and the possibility of a new 85-horsepower two-cylinder engine.
The second step is a new Dodge compact car, based on the Alfa Romeo Giulietta that is being engineered to meet the specifications of the North American market. The new Dodge, which will replace the Caliber hatchback, will hit the market late next year and achieve 40 mpg.
The third requirement is international distribution of Chrysler products, which Marchionne said has suffered a setback in Latin America. Still, he remains hopeful issues involving regulations of the dealer network in Brazil will be resolved by year's end. Fiat has assumed responsibility for distribution of Chrysler vehicles in Europe.
Marchionne said there is no immediate need to exercise the right to raise Fiat's stake above 51 percent, nor is it legally feasible until Chrysler has repaid the loans it received in 2009 from the U.S. and Canadian governments.
He said Fiat does not need that kind of control, operationally, right now, but he did not rule out the wisdom of ratcheting up the stake in the future if the value of Chrysler grows. The CEO noted the value of Chrysler is listed as zero on Fiat's books, but he has learned the value is much higher from his experience running the company.
"If Chrysler continues to improve and prosper, there will be some value there," said analyst Joe Phillippi of AutoTrends Consulting Inc. in Short Hills, N.J.
Marchionne said time is needed to provide better clarity on the long-term capital structure of Chrysler, the right level of indebtedness, how the debt is financed, and the timing to issue public shares (likely second-half 2011).
"These are things that are being examined by the board of directors of Chrysler," he said.
The CEO repeated his expectation that earnings guidance for Chrysler will be raised when Chrysler's third-quarter results come out Nov. 8.
On Thursday Fiat reported a net third-quarter profit of $267 million due to higher sales of trucks and tractors. Revenues were up 12 percent to $18.9 billion in the quarter.
Fiat now says 2010 revenue should exceed $77 billion.
Marchionne reiterated the Alfa Romeo brand is not for sale, despite interest expressed by Volkswagen AG. Discussions continue about adding light commercial vehicles and even medium-duty trucks from Fiat's Iveco brand to the Ram brand in North America.
"We continue to work on the American option but I have no immediate solution for it today," Marchionne said.
