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Fiat to buy remaining U.S. Chrysler stake for $500 million

by Bill Cawthon on

Fiat SpA reached a deal last night to pay $500 million for the U.S. government’s remaining 6% share of Chrysler Group. In addition, the Italian automaker will pay $60 million for the Treasury’s rights to buy the stake held by the United Auto Workers Voluntary Employee Benefits Association (VEBA). An additional $15 million will be paid to the Canadian government.

A Fiat press release announcing the deal was issued this morning in Italy. In the release, Fiat Chairman John Elkann said: “On behalf of my family and I, I reiterate our confidence in Sergio Marchionne and his leadership team and our support of all the people 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.”

Combined with the 46% it already holds, the government share will give Fiat majority ownership of Chrysler. Chrysler is also negotiating for the Canadian government’s remaining stake and will acquire another five percent when the final milestone, certification of a 40 mpg engine built in the U.S., is reached later this year. Altogether, Fiat could have nearly 59% of Chrysler by year’s end.

With the options to buy the VEBA stake, Chrysler CEO Sergio Marchionne says the company may not need an initial public offering. While this would be the easiest route for the VEBA to sell its holdings, financial analysts believe there might not be significant investor interest in buying into a company already majority-owned by another. Speaking to Bloomberg News, Stamford, Connecticut-based consultant Maryann Keller said, “Why would anyone buy shares in a situation where you are perpetually a minority investor. In that situation, you would buy stock in Fiat, not Chrysler.”

With the sale of its remaining stake and the repayment of the loans extended to Chrysler Group, the U.S. Treasury has recovered $11.2 billion of the $12.5 billion it loaned the automaker. The remaining $1.3 billion, loaned to the former Chrysler LLC when it was still owned by Cerberus Capital Management, is unlikely to be repaid.

Bill Cawthon grew up in the auto industry in the 1950s. His Dad worked for Chrysler and Bill spent a number of Saturdays down on the plant floor at Dodge Main in Hamtramck. Bill is also the U.S. market correspondent for just-auto.com, a British auto industry publication, and a member of the Texas Auto Writers Association, which has named the Jeep Grand Cherokee the “SUV of Texas” several times and named the Ram 1500 as the “Truck of Texas” two years running.

Bill has owned five Plymouths (including the only 1962 “Texan”), one Dodge and one Chrysler and is still trying to figure out how to justify a Wrangler. He also has owned at least one of every 1:87 scale model of a Chrysler product. You can reach him directly at (206) 888-7324 or by using the form.


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