Fiat Buys Out The Feds, Becomes Majority Owner Of Chrysler

June 3, 2011

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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