DETROIT (AP) -- Fiat will spend $1.3 billion to raise its ownership stake in Chrysler, the first time the Italian company will invest cash in the Detroit automaker.
It's a sign that Fiat sees profits ahead for the once-troubled maker of Jeeps and minivans and wants a bigger cut now that Chrysler is rebounding from its 2009 bankruptcy.
Fiat already has acquired 30 percent of Chrysler in exchange for management expertise and technology. Fiat said Thursday that it has reached a deal to increase the stake to 46 percent - very close to majority ownership - through the cash investment.
The increased stake means Fiat CEO Sergio Marchionne wants to run Chrysler without interference from other big owners. He also wants a shot at pulling more of the company's profits to Fiat's bottom line, said Michael Robinet, an analyst for the consulting firm IHS Automotive.
"The Fiat management likely wants to be in charge of their own domain, basically have the ability to fully control their business," Robinet said.
In addition to control and profits, the larger stake gives Fiat a larger scale across the globe. Larger automakers can save money by spreading vehicle development costs across more of the world. Marchionne's goal is to create a company capable of making 6 million cars a year - the scale he believes necessary to remain competitive - by 2014.
The U.S. government gave Fiat a 20 percent stake and management control of Chrysler when the company emerged from a government-funded bankruptcy two years ago. Since then, Fiat has gained another 10 percent by meeting certain goals, including making a fuel-efficient engine in the United States and boosting Chrysler's sales outside North America.
Marchionne also has revamped Chrysler's aging product lineup and made available Fiat's fuel-efficient small car and engine and transmission technology.
Fiat expects to gain another 5 percent, for a majority 51-percent share, by the end of the year - setting the stage for a Chrysler public stock offering and raising expectations of a full merger between the companies. A Chrysler IPO could come late this year or early in 2012.
Marchionne said the $1.3 billion would go to Chrysler, not to its other owners. The U.S. government owns 8.6 percent of the company, a United Auto Workers health care trust fund owns 59 percent and the Canadian government holds 2 percent. The governments got their stake after handing Chrysler a total of $9.4 billion in bailout loans.
Before Fiat can increase its ownership, though, Chrysler must repay $6.6 billion in outstanding bailout loans to the governments. That could come this quarter through bank refinancing.
Chrysler is making progress on the financing. Marchionne has complained that the government loans carry high interest that averages 11 to 12 percent per year.
The refinancing agreement is still being negotiated and won't be announced in the immediate future, said a person briefed on the talks.
The company is working to get all parties on board, including the banks and Chrysler's other owners, said the person, who did not want to be identified because negotiations are private.
"Today's announcement takes us one step closer to exiting the U.S. taxpayers' investment in Chrysler," U.S. Treasury official Tim Massad said in a statement.
Marchionne is watching Chrysler's progress carefully.
The company will report first-quarter earnings on May 2. It lost $652 million in 2010, but that represented a huge improvement over the staggering $8 billion loss the year before. Marchionne said he expects net income of $200 million to $500 million this year.
---
Barry reported from Milan, Italy.
© 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy and Terms of Use.