Fiat to buy Fed's remaining $560MM stake in Chrysler

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Autos Insider | Fiat reaches deal to buy Treasury's Chrysler stake for $560M | The Detroit News

Fiat reaches deal to buy Treasury's Chrysler stake for $560M

David Shepardson/ Detroit News Washington Bureau

Washington — Fiat SpA reached a deal late Thursday to acquire the government's final 6 percent stake in Chrysler Group LLC and an option to buy most of the rest of the company for $560 million, the Treasury Department announced late Thursday.

President Barack Obama will announce the deal Friday, heralding the end of the government's nearly 30 months of involvement with the Auburn Hills automaker. The Bush Administration first rescued the company from collapse in December 2008 with a $4 billion bailout.

"As Treasury exits its investment in Chrysler, it's clear that President Obama's decision to stand behind and restructure this company was the right one," said Treasury Secretary Tim Geithner. "Today, America's automakers are mounting one of the most improbable turnarounds in recent history, creating new jobs and making new investments in communities across our country."

Fiat will pay $500 million for the U.S. Treasury's equity in Chrysler and $60 million for the government's option to acquire most of the remaining shares in Chrysler.

Fiat chairman John Elkann praised the workers at Fiat and Chrysler "who are working with dedication and humility and have made it possible to repay the trust that the U.S. government demonstrated towards us a mere 23 months ago. We will continue to support them as they further strengthen this historic alliance and together build an international automotive group capable of competing with the very best in the automotive market."

Obama is visiting a Chrysler Toledo plant Friday to herald the company's repayment last week of its outstanding $5.9 billion in U.S. government loans and interest.

The president will trumpet the government's complete exit from one of the two bailed-out automakers. The move would show the administration's commitment to getting out of the auto business. Obama has repeatedly said he has no interest in running an automaker.

The move also gives Fiat a majority stake in the Auburn Hills automaker of about 52 percent, freeing the company of any government oversight, including pay restrictions imposed by the government as the recipient of a large bailout. It once again puts Chrysler in the hands of a foreign owner, this time Italian, not German, as with the company's prior ownership by Daimler AG.

Obama's announcement could also shift some attention to the fact that the Chrysler bailout will cost taxpayers about $1.3 billion. The sale gives a final accounting to the government's Chrysler losses, though they are far smaller than many predicted.

The Treasury has previously recouped about $10.6 billion of its $12.5 billion Chrysler bailout.

The Treasury is also selling "exotic option" it holds that allows it to buy the United Auto Workers union's health care trust fund's 45 percent stake in Chrysler for $75 million, but $15 million of that will go to Canadian governments that gave Chrysler a separate bailout.

The government has the right to acquire the Voluntary Employees Benefits Association, or VEBA, stake for $5 billion as part of Chrysler's 2009 bankruptcy restructuring. The government had no plans to exercise the option.

One reason the option is worth so little is that rights the trust fund holds — including forcing an IPO in the future — would not transfer to the buyer of the stake under the option.

Last week, Fiat notified the government of its exercising an option to acquire the government stake in Chrysler.

Chrysler and Fiat CEO Sergio Marchionne will be on hand with Obama to herald the deal on Friday. Marchionne said the deal "does not lessen the sense of gratitude that we feel toward President Obama's administration for believing two years ago in Chrysler's partnership with Fiat."

From The Detroit News: Autos Insider | Fiat reaches deal to buy Treasury's Chrysler stake for $560M | The Detroit News