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Fiat Buys Out The Feds, Becomes Majority Owner Of Chrysler

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It's hard to believe that two years have passed since Chrysler's Chapter 11 hearings concluded (next Friday is the grim anniversary). Now, the automaker is preparing to begin a new chapter -- one with Fiat fully at the helm: Chrysler announced yesterday that Fiat will buy out the U.S. government's remaining 6% ownership in the company, leaving Fiat with a 52% stake.

During the exchange, Fiat will cough up $500 million for the fed's remaining 98,461 shares in Chrysler. Fiat will shell out an additional $75 million for the government's call option on shares of the UAW retiree trust fund. For all intents and purposes, the U.S. government will be formally separated from Chrysler after the transaction takes place. (No word on a closing date just yet, though.)

But Fiat isn't going to be content with just 52% of the company. It's set to receive an additional 5% stake in Chrysler when it delivers a new 40mpg model for the Dodge lineup later this year. That addresses a stipulation set by the Treasury that put limits on Fiat's ownership position until it met certain benchmarks -- in this case, the delivery of a new fuel-efficient vehicle.

So, where does this leave everyone?

For Chrysler, the announcement is a huge development -- and a big step forward. Not only does it allow the company more freedom (under Fiat's watch, of course), but it helps rehabilitate the automaker's image with consumers. Chrysler's bailout was highly divisive, and many Americans promised to shun the brand because of it. This news, paired with Chrysler's recent announcement that it was repaying loans ahead of schedule, helps buff the automaker's brand.

For Fiat, this is where things get real. With a majority stake in the company, CEO Sergio Marchionne & Co. now have no one else to blame if Chrysler begins to falter. Marchionne has always struck us as fairly level-headed and conservative in his estimations, and so far, he's followed through on his pronouncements. We'll see if he can continue delivering.

For the feds, this means the end of a long, curious road. The bailout of Chrysler and GM was a major stumbling block for Obama during his first year as president (though technically Bush set the bailout ball in motion for both automakers and financial institutions). In the end, the bailout hit a number of hitches, but it wasn't as much of a bust as doomsayers predicted. Thanks in large part to the rebounding U.S. economy, GM and Chrysler are both doing fairly well today.

For taxpayers, this means a sigh of relief -- or groan of despair, depending on your point of view. The U.S. government invested about $12.5 billion in Chrysler, and once its transactions with Fiat are completed, the feds will have received $11.2 billion of that back in the way of repayments, mixed with some loan forgiveness. The remaining $1.3 billion? Not going to happen.

Some would -- and will -- argue that a $1.3 billion loss is completely indefensible. Others will say that $1.3 billion is a small price to pay to keep thousands of jobs in play and resuscitate one of the world's biggest auto brands. Feel free to share your opinions in the comments below.

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Comments (7)
  1. i think Chrysler should have to reply the last 1.3 billion. even if its over a stretch of 20 years. even though i am a dodge owner, i don't think the government should take the loss, it should be the automaker. they did right by not destroying jobs. but it should eventually be paid back

  2. So, if the government can waste my tax money to the tune of $1.2 billion, can i claim my share of the loss as a tax writeoff when i file my returns?
    After all, i was an owner of Chrysler through government.

  3. In Europe Fiat is way below VW(group), BMW, Merc and well under Ford, Opel and Renault (Nissan for the US readers). You see, here a US made car has no chance on the quality POV. So Chrysler has a LOT to learn form FIAT. At least they are excellent motor builders.

  4. In Europe Fiat is way below VW(group), BMW, Merc and well under Ford, Opel and Renault (Nissan for the US readers). You see, here a US made car has no chance on the quality POV. So Chrysler has a LOT to learn form FIAT. At least they are excellent motor builders.

  5. does the people of northen il.good did not want the large plant in belvedere to close ,many people wpork there largest employer in area!

  6. I don't know how many jobs were save. But, if we assume 10,000 jobs, x $60,000 per year, we have six hundred million dollars. x 2 years, we have 1.2 billion dollars. So it kind of seems like a break even proposition to me. And now they are no longer U.S. owned, so it seems to me it failed. We lost ownership anyway. We could have just written a check for $120,000, to all 10,000 workers, and said we are letting it go bankrupt. Someone would propably would have bought it for a good price, and put the workers back to work anyway. Government should never be involved in these type of situations. And now obama is taking credit for the loans being paid back early, and the only way that happened is because he sold the company to fiat in ital

  7. Obviously Fiat sees Chrysler as a solid investment in an established and viable company. With three outstanding brands,each with distinctive market appeal,Chrysler division offers every indication of a company that can build market share and profits.
    The present line up is very good, if not outstanding but with new and much improved product in the wings, especially in the void now existing at Dodge in sub-compact and compact cars, growth is almost assured.
    What is most difficult is for Fiat to continue to respect the unique American "culture" at Chrysler, continue to integrate American designed and built product into its foreign markets and giving Chrysler autonomy to follow its traditional market niche.

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