Chrysler Takes Another Step in Recovery Process as Fiat Increases Stake in American Automaker

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Researched by Industrial Info Resources (Sugar Land, Texas)--For decades, The Chrysler Group LLC (Auburn Hills, Michigan) has been the almost-forgotten American automaker. Chrysler has had to scratch and claw for every bit of the market share it has managed to capture as its big brothers, General Motors Company (NYSE:GM) (Detroit, Michigan) and Ford Motor Company (NYSE:F) (Dearborn, Michigan), have dominated the North American market over the years. After falling into bankruptcy in 2009, Chrysler seemed to be on its last legs; however, Fiat SpA (PINK:FIATY) (Turin, Italy) stepped up to take control of the struggling automaker, breathing some much needed fresh air into the lungs of an automaker that had been continually losing market share to its larger American competitors and foreign automakers. Since it took control, Fiat has been making all the right moves for Chrysler, slowly meeting mandated benchmarks and increasing its hold on the American automaker.

Initially, Fiat took a 20% stake in Chrysler, with the balance of ownership split among the United Auto Workers union (UAW) (Detroit, Michigan), the U.S. government, and the Canadian and Ontario governments. Fiat revamped Chrysler's leadership and developed a new plan to improve the automaker gradually over a number of years, building on its strengths and introducing Fiat's management style; smaller, more fuel-efficient vehicles; and Fiat's clean-engine technology.

Fiat increased its stake in Chrysler to 25% in January of this year, when Chrysler began producing fuel-efficient, four cylinder engines at one of its plants in Michigan. Now, Fiat has added another 5% stake in the American automaker, bringing its total ownership share to 30% by meeting three additional benchmarks required as part of the bankruptcy proceedings. Fiat has increased Chrysler's sales outside of North America; recruited dealers in both Europe and Brazil to begin selling Chrysler vehicles; and compensated Chrysler handsomely for Fiat's use of Chrysler's technology, which allowed the Italian automaker to take over the additional 5% stake in Chrysler.

The next step will be for Fiat and Chrysler to develop a car capable of maintaining a 40-mile-per-gallon rating in the U.S. If Fiat and Chrysler can accomplish this, then Fiat will be able to take over an additional 5% stake in Chrysler, giving Fiat 40% of the ownership. Fiat's executives are hoping that this benchmark can be reached by the end of the year. Plans are in the works for the 40-mile-per-gallon vehicle, but additional development is required; then, the automaker will have to decide where it will assemble the vehicle, make any necessary changes to that facility, and begin production before Fiat can make its next ownership leap.

Fiat is hoping to increase its stake in Chrysler an additional 16% by early 2012, giving the automaker 51% of the ownership of Chrysler. Fiat can purchase this additional 16% by repaying its loans from the U.S. and Canadian governments, loans that Fiat is attempting to renegotiate with banks so they can pay them off more rapidly. Both the U.S. and Canadian governments will eventually give up the majority of their shares in the automaker as Fiat continues to increase its stake in the company, while the UAW is likely to keep a fair portion of its ownership to maintain some influence on the direction Chrysler takes in the years to come.

Fiat is hoping that they can use Chrysler's facilities in North America to re-introduce the entirety of Fiat's lineup of smaller vehicles to the consumer on this side of the Atlantic. Fiat was last involved in North American sales in the 1970s, when the automaker gained a reputation for significant problems with its vehicles, significant enough to drive Fiat out of North America altogether. Adding Fiat's lineup of vehicles to Chrysler's will give Chrysler the versatility to compete head-on with the larger automakers, making Chrysler a force to be reckoned with again in North America.

Fiat is planning to slowly introduce its products back into the North American markets over the next two the three years while rebuilding not only its own image but Chrysler's as well. So far, both Fiat and Chrysler have been making all the right moves during the recovery process. Sales are increasing, and no significant problems have occurred. Hopefully, Fiat and Chrysler can maintain this pace of redevelopment and make Chrysler a name to be proud of once again. While there is certainly room in the market for Fiat and Chrysler, the North American market is much tougher and much more varied than the last time Fiat attempted to make a name for itself on this side of the pond. But the slow path to reintroduction and the recovery of Chrysler appear to be working well for both automakers.

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