Italians to the Rescue

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Italian automaker Fiat SpA agreed late Thursday to acquire the U.S. Treasury’s 6% stake in Chrysler Group LLC for $560 million, ending the Obama administration’s involvement with the Auburn Hills automaker.

The move gives the Italian automaker a 52 percent majority stake in Chrysler. The U.S. exit ends a 30-month involvement of two administrations in saving the company from collapse, beginning with the Bush administration’s decision to bail out Chrysler with $4 billion in December 2008. The taxpayers will see a $1.3 billion loss on the bailout. Chrysler received $12.5 billion in total, including $8.5 billion advanced by the Obama administration. The government had previously recovered about $10.6 billion.

“As Treasury exits its investment in Chrysler, it’s clear that President Obama’s decision to stand behind and restructure this company was the right one,” said Treasury Secretary Tim Geithner.

Fiat CEO Sergio Marchionne said the deal “accelerates our integration agenda designed to create a global, efficient and competitive automaker, and guaranteeing to our extended Chrysler family a sound future.”

President Barack Obama is expected to announce the deal Friday when he visits a Chrysler assembly plant in Toledo, Ohio The president plans to “hear firsthand from local business owners and residents about the importance of the auto industry resurgence to the community as a whole and the economic devastation it would have faced had Chrysler been allowed to fail,” the White House said.

“Today, America’s automakers are mounting one of the most improbable turnarounds in recent history — creating new jobs and making new investments in communities across our country,” he said.

The decision to save Chrysler has become a cornerstone of Obama’s 2012 re-election effort, with the White House arguing jobs saved outweigh taxpayer losses. The announcement also could shift attention to the $1.3 billion cost to taxpayers.

The government’s exit ends restrictions Chrysler faced: The Treasury Department will no longer have to approve pay packages for senior executives. The government had required the majority of compensation for senior executives be in stock and other non-cash forms and placed limits on cash salaries. Chrysler executives also are free to again use private and corporate aircraft for business.

Fiat will pay $500 million to the Treasury Department for its 98,461 shares of Chrysler and another $75 million for the right to purchase the 45.7 percent of Chrysler owned by the United Auto Workers union’s healthcare trust fund.The Treasury will give 20 percent of the $75 million purchase right, or $15 million, to Canada and keep the remaining 80 percent, the department said.

The transfer of the stock to Fiat could take up to three months.

The U.S. exit marks an impressive turnaround for the automaker, one the Obama administration nearly let die in March 2009. Obama agreed to extend further aid if Chrysler could reach a tie-up with Fiat. The Italian automaker agreed to run Chrysler, but paid nothing for an initial 20 percent stake.

The White House put Chrysler through a 42-day government-financed bankruptcy restructuring, ending the automaker’s brief ownership by private equity firm Cerberus Capital Management LP. Chrysler was able to wipe away billions in debts and other long-term liabilities, cut about a quarter of its dealers and sharply reduce its labor costs. It was the second near-death experience for the automaker that received a $1.5 billion loan guarantee from taxpayers in 1980.

In all, the Treasury will get $560 million in the deal, which is expected to close by August following antitrust reviews.
The Treasury also is working to exit General Motors Co., the other of two bailed-out automakers. The Treasury, which shed about half of its GM stake, hopes to sell much of its remaining 26 percent stake in August. But the government stands to lose $10 billion or more.

The Treasury also is selling for $75 million an “exotic option” it holds that lets it buy the 45 percent stake in Chrysler that is held by the health care trust of the United Auto Workers union. The government had the right to acquire the Voluntary Employees Benefits Association stake for $5 billion as part of Chrysler’s 2009 bankruptcy restructuring.

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