Automotive News

Chrysler Group LLC, in a step that will help Fiat SpA increase its controlling stake, plans to invest $179 million in the next five years at a Michigan factory to build the Italian company's 4-cylinder, 1.4-liter engines.

The production of as many as 250,000 engines annually will add 155 employees, according to documents Auburn Hills, Michigan-based Chrysler filed with the state for job-creation tax credits.

The fuel-efficient engine would be used in the Fiat 500 subcompact next year and satisfy a requirement for the Turin, Italy-based automaker to expand its 20 percent stake in Chrysler. The confirmation is the first of Fiat technology being added to a Chrysler facility.

"That's good news," said Serge Escude, an analyst with Cassa Lombarda in Milan who has a "hold" rating on Fiat shares. "It's rather quick."

Fiat can acquire an additional 5 percent stake each time it reaches one of three targets, including building a fuel- efficient engine in the U.S. Fiat may get as much as 30 percent ownership by the end of March 2011 and the remaining portion at the end of 2011, said Adam Jonas, a Morgan Stanley analyst based in London.

Chrysler is under Fiat control after emerging from a U.S.- backed bankruptcy this year following a government bailout. The U.S. Treasury owns 9.85 percent of Chrysler, Canada has 2.46 percent and 67.69 percent belongs to the United Auto Workers union retiree medical fund, according to bankruptcy documents.

Expansion Targets

The other goals the U.S. government set for allowing Fiat to increase ownership are producing a car in the U.S. that gets at least 40 miles per gallon and reaching sales targets for Chrysler vehicles outside North America.

The plant, in Dundee, Michigan, builds 4-cylinder engines ranging from 1.8 to 2.4 liters. In August, Chrysler bought the stakes in the engine-plant business that it had shared with Mitsubishi Motors Corp. and Hyundai Motor Co. The operation is called the Global Engine Manufacturing Alliance.

Chrysler considered building the engine in Saltillo, Mexico, which would have been closer to assembly plants that will use the engine in new cars.

"We look forward to working with state and local officials to make this project a reality," Chrysler said in an e-mailed response to an inquiry about the project. "Several steps remain in the process."

Chrysler expects to double its use of 4-cylinder engines to 38 percent of its vehicles sold in 2014 from a projected 19 percent next year, according to the company's business plan.

Fiat fell 10 cents to 10.82 euros in Milan at 4:18 p.m. local time. The shares have more than doubled this year.