Fiat to lift Chrysler stake to 35 percent within 2 years

TURIN Fri Mar 26, 2010 1:02pm EDT

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TURIN (Reuters) - Fiat FIA.MI expects to increase its holding in Chrysler to 35 percent within two years, Chief Executive Sergio Marchionne said on Friday, as it works to turn around the struggling U.S. carmaker.

Fiat agreed last year to take over 20 percent of then insolvent group Chrysler. The Italian carmaker can add a further 15 percent in three tranches based on reaching certain objectives agreed with the U.S. government.

Marchionne said Fiat will start raising its stake in Chrysler this year.

"There are three steps of five percent. We will do one share this year, with the launch of the 500 in the United States," Marchionne told a press conference after the group's shareholder meeting. "We will add 15 percent within 24 months," he added.

One of the objectives is the production of a small, fuel-efficient car like the 500 in the United States, which Fiat plans to do this year.

"Chrysler is on the recovery track as foreseen in the plan," Marchionne said.

Fiat told shareholders earlier that the integration agreed last year with Chrysler was on track. The Italian group took a stake in Chrysler in the midst of a global economic crisis, taking the bold decision to expand its international footprint while other players were struggling.

Fiat also has signed strategic partnerships with automakers in China and Russia to give it access to growing markets.

Marchionne called the move on Chrysler a "second chance" for the carmaker, which itself came close to insolvency in 2004.

Fiat, which plunged to a loss in 2009 after a record year in 2008, should be near breakeven in 2010, Marchionne said.

ITALY REMAINS PIVOTAL

Earlier, Marchionne had said Italy remains pivotal for the group, despite the planned closure of a large plant in Sicily and expansion abroad to fight the global crisis.

Rejecting domestic attacks on the company's strategy, Marchionne defended in a passionate speech the strategic choices of Italy's largest industrial group, saying the carmaker would have never closed the Termini Imerese plant in Sicily had a real alternative emerged.

"Choosing to go abroad was not a whim and certainly Fiat did not expand forgetting Italy," Marchionne told shareholders at an annual meeting in Turin, in one of his strongest speeches on the issue.

"We expanded to make this company stronger," he said, calling "unjust" criticism that the Italy-based group was loosing its domestic roots. Fiat employs around 190,000 people.

Marchionne declined to comment on the 2010-2014 strategic plan that he will unveil on April 21, which may clarify whether Fiat will spin off its carmaking activities from its commercial vehicles and publishing business.

Fiat is planning to close down the Termini Imerese plant, which employs 1,500 people, in 2011. Newspaper La Repubblica said total job cuts in Italy could hit 5,000 workers.

Fiat faces a difficult 2010 after the Italian government scrapped car buying incentives.

Marchionne predicted car sales in Europe, due to contract by 15 percent this year back to 1994 levels, would take four years to regain pre-crisis volumes.

(Editing by David Holmes and Erica Billingham)

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