Fiat Said to Buy Chrysler Assets Today to Form New Automaker

Fiat Said to Buy Chrysler Assets Today to Form New Automaker


June 10 (Bloomberg) -- A group led by Fiat SpA will complete its purchase of most Chrysler LLC assets this morning New York time, after the U.S. Supreme Court rejected creditors’ objections and cleared the way for a new U.S. automaker, said two people familiar with the matter.

The new company, Chrysler Group LLC, will be owned 20 percent by Turin, Italy-based Fiat, 9.85 percent by the U.S., 2.46 percent by Canada and 67.69 percent by a United Auto Workers union retiree health care trust fund. The U.S. and Canadian governments financed the sale with $2 billion.

The sale will fulfill President Barack Obama’s promise of a “quick” trip through bankruptcy and protection of 54,000 jobs. Chrysler Group now starts fresh with lower debt, fewer expenses, reduced labor costs, a well-capitalized financing arm and access to fuel-efficient vehicles and world markets through its Fiat partnership.

“They are going to be leaner and meaner -- with management across the ocean,” said Stephanie Brinley, an automotive analyst with Autopacific Inc. in Troy, Michigan. “The new company has not lost some of the challenges of the old company. They don’t have new cars yet and they are still competing in a difficult environment.”

The court’s decision allows the creation of a “vibrant new car company” with Fiat, Chrysler said in a statement. “The transaction is expected to close very shortly,” the Auburn Hills, Michigan-based automaker said.

Chrysler Bankruptcy

Chrysler filed for bankruptcy protection on April 30, using the reorganization to retain its strongest assets and form an alliance with Fiat that ranks as the world’s sixth-largest car manufacturer.

The bankruptcy court approved the sale and on June 5 a U.S. Appeals Court ruled unanimously to reject challenges by Indiana pension funds and consumer groups. Supreme Court Justice Ruth Bader Ginsburg on June 8 ordered a delay while the higher court considered a request for a longer postponement.

In an unsigned four-paragraph opinion, the Supreme Court said yesterday it wasn’t deciding cases other than the Chrysler dispute. The order “is based on the record and proceedings in this case alone,” the nine-member court said.

Chrysler’s recovery may depend on efforts to turn back a U.S. sales decline of 46 percent this year through May. The automaker lost $16.8 billion in 2008 as its domestic sales dropped 30 percent, according to court documents.

Treasury Financing

The U.S. Treasury loaned the automaker $4 billion in early January to prevent a collapse at a time when the U.S. economy was plunging deeper into recession. The Treasury has provided $15.5 billion in aid to Chrysler from Jan. 2 through May 27, according to statements from the department.

Fiat will run Chrysler and can eventually increase its stake to 51 percent by meeting certain operating milestones with Chrysler, along with option purchases. Fiat Chief Executive Officer Sergio Marchionne will hold the same post at Chrysler and serve on the nine-member board along with Chairman Robert Kidder, former Exxon Mobil Corp. Vice Chairman Lucio Noto and Alfredo Altavilla, a Fiat executive. The five other directors haven’t been named.

“We are delighted that the Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker,” the U.S. Treasury said in a statement.

Different Products

The pairing brings together two companies with largely different products and markets. Chrysler gets more than 90 percent of its sales from North America through its Chrysler, Dodge and Jeep brands, and Fiat has almost no presence on the continent.

The Italian automaker has the most fuel-efficient lineup of vehicles in Europe while Chrysler is known for V8-powered large sedans, sport-utility vehicles and pickups.

The combined automakers would have sales of 4.5 million vehicles globally based on 2008 results, placing them just behind Ford Motor Co.

For Chrysler employees, the alliance means the third set of owners in less than two years, after spending the past 21 months under the control of private-equity firm Cerberus Capital Management LP. Cerberus bought Chrysler from DaimlerChrysler AG for $7.4 billion in August 2007.

The sale transfers to the new company substantially all of Chrysler’s operations, excluding eight manufacturing sites, dozens of pieces of real estate, equipment leases and contracts with 789 U.S. auto dealerships.

Long Wind-Down

The assets left behind will be sold off under court supervision with the proceeds to be distributed to creditors with claims against Chrysler LLC.

Chrysler may begin selling the first Fiat vehicles in as little as 18 months, Marchionne has said. The new company will build a new car in the U.S. based on the mechanical underpinnings of the Alfa Romeo 149 that hasn’t gone on sale yet. The automaker also is planning to sell the Fiat 500, a subcompact two-seat car similar in size to Daimler AG’s Smart minicar.

Chrysler may build Fiat engines in an unused section of its Dundee, Michigan, factory, Scott Garberding, Chrysler’s purchasing chief, said in court testimony.

Toyota Motor Corp. was the world’s largest automaker in 2008, followed by General Motors Corp., Volkswagen AG and the Renault SA-Nissan Motor Co. alliance.

BLOOMBERG