Chrysler Group LLC will begin producing a Fiat-derived four-cylinder engine in early November, a step required to increase Fiat SpA’s ownership stake.
Output of the 1.4-liter engine is one of three milestones needed for Turin, Italy-based Fiat to increase its 20 percent ownership of Auburn Hills, Michigan-based Chrysler.
“It’s going to be early in November” when production begins, Gualberto Ranieri, a Chrysler spokesman, said in a telephone interview yesterday. He said everything is on schedule.
Sergio Marchionne, chief executive officer of both Chrysler and Fiat, last week said Fiat plans to boost its stake to 25 percent by the first quarter and to 35 percent by the end of next year. Fiat acquired control of Chrysler in the U.S. automaker’s bankruptcy reorganization last year.
Marchionne has said Chrysler may hold an initial public offering in the second half of 2011.
As part of the restructuring deal, Fiat can increase its stake in 5 percent increments to 35 percent by achieving three milestones. In addition to introducing the small engine, Chrysler must build a vehicle in the U.S. that gets 40 miles per gallon and meet sales and revenue targets outside of North America.
The majority of Chrysler’s ownership is held by a trust established to cover medical costs for union retirees.
Governmental Approvals
The Fiat ownership stake increase is triggered by Chrysler’s receipt of government approvals for the engine, according to Chrysler’s operating agreement posted on the U.S. Treasury Department’s website.
The U.S. must also receive an “irrevocable commitment by the company” to begin commercial production of the engine “as soon as commercially practicable,” according to the document.
Mark Paustenbach, a Treasury spokesman, declined to elaborate.
Chrysler said last year it would invest $179 million into an engine plant in Dundee, Michigan, for what it calls the Fully Integrated Robotized Engine to be used in the Fiat 500 small car, which will be made in Mexico.
“Fiat’s share will increase automatically by 5 percent when this milestone is reached,” a Chrysler spokeswoman, Eileen Wunderlich, said in an e-mail.
