Here’s How Fiat Plans to Make Chrysler a Major U.S. Player Again

The resurrection of the American car manufacturers was well documented by last month’s United States sales figures.

Of the Big Three Detroit Automakers — Ford (NYSE:F), General Motors (NYSE:GM), and Chrysler — Chrysler is clearly lagging behind. Together, in the month of April, these manufacturers captured 47 percent of all light vehicle sales, compared to the 44 percent sales by Asian and the 9.3 percent by European brands. But that figure broke down to a 18.5 percent market share for GM and a 16.5 percent share for Ford, while Chrysler only secured a 12.2 percent share.

Chief Executive Officer Sergio Marchionne, who heads both Fiat and Chrysler, has spent the last four years remolding the two regional automakers in a single global manufacturer, capable of competing with Toyota (NYSE:TM), General Motors, and Volkswagen. As a cohesive unit, the two companies would be able to target the mass-market with the Fiat, Chrysler, Jeep, and Dodge brands, as well as the high-end with the Ferrari and Maserati.

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One part of his effort has just begun to gather momentum. Fiat is attempting to borrow as much as $10 billion from a varied pool of banks so that it can buy the 41.5 percent stake in Chrysler that it does not already own. Sources familiar with the talks told Bloomberg that this stake is held by the United Auto Workers’ retiree healthcare trust. The group of banks rumored to be involved includes Bank of America (NYSE:BAC), Deutsche Bank (NYSE:DB), Goldman Sachs (NYSE:GS), and BNP Paribas.

Fiat, which first took control of Chrysler in 2009 after it emerged from bankruptcy, plans to complete the purchase of the remaining stake by the end of the summer. Chairman John Elkann told Bloomberg reporters Thursday in Turin, Italy that the company would likely wait for its dispute with the healthcare trust over the value of Chrysler to be resolved before taking another step forward with the deal.

“The merger is the right choice for Marchionne and the only possible option to avoid Fiat being marginalized or bought by a competitor in the medium term,” Emanuele Vizzini, chief investment officer of Investitori Sgr, told the publication. “I see it as likely that they will get favorable financing by the end of the summer and then list in the U.S.”

As of now, Fiat plans to buy the stake for as much as $3.5 billion and later refinance the debt of both companies at lower interest rates, Bloomberg’s sources said. “It seems discussions are progressing on Fiat’s plan to buy Chrysler, and Marchionne is getting closer to his plan of merging the two carmakers and forging a global player,”  UBS automotive analyst Philippe Houchois told the publication. “Debt alone can help provide short-term financing, but something other than pure debt will be needed to improve the capital structure.” One option is that Fiat could create a new company in the United States, merging together Fiat and Chrysler, and then issue shares in an initial public offering.

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Marchionne has already merged the two carmakers’ operations into a single entity. In the future, this move is expected to cut costs, as future models will be built from many of the same parts; up to two-thirds of the vehicle’s value could be comprised of shared parts. In compact cars, around 20 models will based on the same technology, including the Alfa Romeo Giulietta and the fuel-efficient Dodge Dart.

Still, the company must first solve the court dispute over the price of Chrysler’s shares. The judge overseeing the case has until late July to make a ruling in the case, and experts believe that the Italian carmaker may end up paying more than it has offered. Once the case and the merger is concluded, Marchionne may move Fiat’s headquarters to the United States from Italy as the main revenue and profit sources are expected shift to North America.

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