Having completely
renegotiated the terms of the second 5 percent
increment, Chrysler Group today announced that Fiat's
ownership interest has increased from 25 percent to 30
percent with immediate effect. "The increase is the
result of the achievement of the second of three
performance-related milestones," says Chrysler Group,
noting that the revised terms were "outlined in a recent
amendment to its June 10, 2009, Operating Agreement."
The second 5 percent ownership tranche came in two steps
and this time focused on international sales. The first
phase required Chrysler Group to tot up revenues of more
than $1.5 billion in sales made outside of Canada,
Mexico and the United States after June 10, 2009, a
total that has since been achieved.
The second phase of this
'middle' 5 percent step covered Fiat dealers in Europe
and Brazil - the two global areas where the Italian
carmaker is strongest - taking on Chrysler Group
products, at a penetration level of 90 percent. However,
with the Chrysler Group having a poor reputation in both
regions, coupled to a weak product mix, Fiat would have
been highly unlikely to persuade dealers any further
than the reasonably resilient Jeep brand, albeit it the
off road division being something of a longer term
proposition.
Instead, Fiat has
renegotiated with the U.S. Treasury to see that Chrysler
Group products sold with Fiat Group badging will count
in place of the original terms. With Dodge's Journey now
being rebadged as a Fiat Freemont and to be available on
European markets (starting with Italy next month) as
well as Brazil, this will satisfy the now watered down
requirements. It is shrewd negotiating by Fiat as sales
volumes haven't been mentioned, meaning that the
Journey's arrival on the pricelists - even if it is a
flop as many predict - will be enough to tick the boxes.
As the deal says "one or more", the Journey's showroom
arrival will be enough to satisfy the terms. It also
somewhat explains Fiat Group's enthusiasm for the
forthcoming rash of badging - as, as well as the Dodge
Journey becoming the Fiat Freemont, the Lancia brand
will take Chrysler's 200 (Sebring), 300 and Town &
Country - when the earmarked products will find it hard
to achieve success.
According to the
statement issued by Chrysler Group today the new terms
are three fold: "An agreement covering at least 90
percent of Fiat dealers in Brazil for the distribution
of one or more company products (including Chrysler
Group products rebadged and sold under the brand names
of Fiat Group Automobiles); an agreement covering at
least 90 percent of Fiat dealers in the European Union
(EU) for the distribution of one or more company
products (including Chrysler Group products rebadged and
sold under the brand names of Fiat Group Automobiles),
and providing for the pooling of Chrysler Group and Fiat
vehicle fleets in the EU for CO2 emissions ratings; and
an agreement providing for compensation to the company
for the use of its technology by Fiat or its affiliates
outside of the NAFTA countries."
The ownership interests
of the Chrysler Group’s stakeholders now stand at 59.2
percent for the unions (UAW/VEBA), Fiat moves up to 30
percent, while the U.S. Treasury (8.6 percent) and
Canadian governments (2.2 percent) make up the balance.
The Chrysler Group
reached the first "performance event" in January 2011
with the U.S. production of the fuel efficient FIRE
engine in Michigan which increased Fiat’s ownership from
the 20 percent, which it was given when the Chrysler
Group emerged from the Chapter 11 bankruptcy process, to
25 percent. Once Fiat hits the
final five per cent step by building an efficient
compact car, scheduled for the end of the year, it will
be able to exercise a call option to purchase a 16
percent stake in Chrysler, to take its shareholding to a
controlling 51 per cent. The sums involved aren’t fully
fixed, but Bloomberg, quoting JPMorgan Chase &
Co. analyst Ranjit Unnithan, last week said it would add
up to a figure of $1.14 billion if Fiat bought the stake
this year, or US$1.37 billion in 2012, as the call
option's rate is tied into earnings. Regarding the 35
percent level, Marchionne said last Friday: "The last bit, which
is linked to the approval of a car that will get 40
miles a gallon, is expected to be there by the end of
this year. By the end of 2011, everything will be done.
We'll reach a 35 percent stake by the end of 2011,
maybe."
