Fiat’s deal to buy into Chrysler

Jeff Bennett at the WSJ writes that Fiat just increased its stake in Chrsler from 25% to 30%. The terms of that deal are fascinating, and very well crafted.

The original stake Fiat was given was 20%, as part of bankruptcy organisaiton and alliance.

Then they get given 5% more for each of the performance mandates that they reach. These mandates are cleverly focussed on ensuring that Chrysler grows through developing better products and increasing export-led sales, and are tangible and achievable.

• Mandate 1: Help Chrysler build a new fuel-efficient engine in the USA <done>
• Mandate 2: Increase Chrysler’s revenue outside North America by $1.5 billion AND  secure agreements to sell Chrsler vehicles through 90% of dealers in Brazil and the EU. <done>
• Mandate 3: Produce in the USA a small car based on Fiat technology that can go 40 miles on one gallon <later this year>

After that Fiat can refinance the current loans and then they will be allowed to purchase another 16% – to make a total of 51% of the company. After that an IPO is on the cards.

All in all a nice way to align incentives. Fix the company and reap the rewards.