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U.S. government selling its shares in Chrysler to Fiat

June 2, 2011 |  8:34 pm

Word came late Thursday that Fiat will soon pay $500 million to buy out the U.S. government-owned shares of Chrysler.

Here's the story:

DETROIT — Chrysler Group, newly profitable and confident in its revamped products, will soon sever its ties with the U.S. government.

Italian automaker Fiat agreed late Thursday to buy the U.S. Treasury's 6% interest in Chrysler for $500 million. Once the deal closes, the government will no longer hold a stake in the auto company. Treasury officials said it could take up to three months to make sure the agreement meets regulatory approvals, but it probably will close more quickly than that.

President Obama is expected to announce the agreement Friday during a trip to a Chrysler facility in Toledo, Ohio.

The deal means the U.S. government won't get back the full $12.5 billion in bailout loans it gave Chrysler from the end of 2008 through Chrysler's bankruptcy in the summer of 2009. The Treasury Department said Thursday that Chrysler has repaid $11.2 billion, but it is unlikely to recover $1.3 billion. But government officials have long said that they didn't expect to recover the full amount they lent to Chrysler and General Motors Co. during the auto industry downturn, and that their top priority was saving thousands of auto jobs.

“We didn't do this to maximize return. We did it to save jobs,” Treasury Secretary Timothy F. Geithner said during a trip to Detroit in April.

Fiat also agreed to pay $75 million for the right to purchase the Chrysler shares held by a trust for retired autoworkers. The Treasury will receive 80% of those proceeds, or $60 million, while the government of Canada will get $15 million. 

The deal will give Fiat a majority 52% stake in the automaker just two years after it agreed to manage Chrysler after its bankruptcy.

Chrysler has made a remarkable turnaround. Before entering bankruptcy proceedings, the automaker was nearly out of cash and needed U.S. government money to survive. The company made a first-quarter profit of $116 million and is forecasting 2011 earnings of $200 million to $500 million. Under the leadership of Fiat Chief Executive Sergio Marchionne, the company has cut costs and revived its sales by refurbishing most of its lineup of Jeep, Chrysler, Dodge and Ram vehicles. Sales of the Jeep Grand Cherokee were nearly three times higher in May than in the same month a year earlier.

Fiat's stake is likely to rise to 57% before the end of the year, when Chrysler meets another milestone set by the U.S. government: Producing a 40-mpg small car in the U.S. All told, Fiat has the right to purchase more than 70% of Auburn Hills, Mich.-based Chrysler.

-- Associated Press

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