DETROIT (Bloomberg) - Chrysler Group LLC is planning to sell vehicles under the Fiat name in Latin America to meet a U.S. requirement for the Italian automaker to raise its ownership stake in the U.S. company.
Mike Manley, who leads international sales for Chrysler, confirmed yesterday at an event that Chrysler was working on a plan to sell Chrysler-made vehicles under the Fiat brand in Brazil.
Chrysler's U.S.-backed restructuring in 2009 requires it to meet certain revenue goals and add 90 percent of Fiat's dealer network in Latin America as franchises before Fiat can obtain an additional 5 percent stake in Chrysler.
Fiat SpA gained control of Chrysler as part of the government bailout.
"That's the wording, but the spirit was for us to be able to expand our reach and our growth within the marketplace, and there are different ways of achieving that," Manley said.
Adding Chrysler franchises in Latin America would take time and be costly, he said. Chrysler is "pretty close" to being able to say whether the issue is resolved, Manley said.
"Everybody has looked at the situation, and I think they're relatively comfortable with the way we've proposed to do that," Manley said. "I think we've found the right way to fulfill the spirit of what we want to achieve."
Sergio Marchionne, CEO of both automakers, is pushing Chrysler to increase its global sales 32 percent this year and post its first annual net profit since emerging from bankruptcy reorganization in 2009. The restructuring gave Fiat a 20 percent stake in Chrysler with options to increase it to 35 percent by meeting certain performance goals.
The first goal -- having Chrysler build a Fiat-derived engine in the U.S. -- was reached and announced in January, raising Fiat's stake to 25 percent.
The second milestone requires that Chrysler build a car in the U.S. that achieves 40 mpg, and the third entails sales objectives, such as establishing dealerships in Latin America and generating $1.5 billion in revenue outside of North America.
The revenue part of that milestone has been reached, a person familiar with the situation has said.
Marchionne has said he expects to meet the remaining two milestones and use an option to purchase an additional 16 percent of Chrysler by the end of the year, giving Fiat 51 percent of Chrysler.
Fiat may pay $1.14 billion to exercise its call option on the remaining 16 percent if Marchionne makes the purchase in 2011 and $1.37 billion if he buys it next year, according to Ranjit Unnithan, an analyst with JPMorgan Chase & Co.
Fiat has 700 dealers in Latin America, including 550 in Brazil. Chrysler, which received 72 percent of its sales in the U.S. last year, has 35 dealers in Brazil.
Marchionne said in October that the Latin American expansion was difficult because of regulations governing the dealer network in Brazil.
The company was working with the U.S. Treasury "to find a suitable solution or replacement to that condition," he said.
Brazilian law prohibits Fiat from forcing the dealers to become Chrysler franchises, said Stephan Keese, head of the automotive practice for Roland Berger Strategy Consultants in Sao Paulo.
"By law, they're not obligated," he said. "If you ask the dealers to undergo the investment in their showrooms to take Chrysler on, certainly they will want to have some volume guarantees or incentives or something else."
Brazil is Fiat's second-largest market by revenue, trailing only Italy. The company sold 761,400 passenger and light-commercial vehicles there last year.
Chrysler models are considered expensive in Brazil and aren't held in high esteem, said Ronaldo Parente, a former general manager of a Chrysler dealership in Brazil who now is an associate professor at Rutgers University's School of Business in Camden, N.J.
"Chrysler has a terrible image in Brazil," he said. The company's product line tends toward big trucks and sport-utility vehicles and lacks models suitable for the market, Parente said.
The U.S. automaker sold 3,952 vehicles in Brazil last year, according to J.D. Power & Associates.
Chrysler's best-selling vehicle in Brazil is the Mexico-built Dodge Journey SUV, which starts at 82,900 reais ($52,300).
The Journey starts at $22,245 in the U.S.
Chrysler plans to make 30,000 of the vehicles in Mexico as Fiat Freemonts for sale in Brazil, Joseph ChamaSrour, the president of Chrysler de Mexico SA, said in January.
Fiat's sales leader is the Uno small car, which is assembled in Brazil and starts at $13,800, said Guido Vildozo, an analyst with IHS Automotive in Lexington, Mass.
Rubens Carvalho, president of Total Cars, a Fiat dealer with eight stores in Sao Paulo and Minas Gerais states, said he didn't expect problems assimilating Chrysler with Fiat dealerships.
"Fiat will bring products that complete our lineup in Brazil," he said. "And we have to have cars that are made in Mexico, to benefit from the import tariff deal between the two countries, and not from the U.S., which would lead to overpriced cars."