Italy’s Fiat SpA (FIATY) announced that it will purchase the remaining 6% stake of U.S. government in Chrysler by the end of this year. With this, Fiat’s ownership interest in Chrysler would go up to 57%.

After the repayment of $7.5 billion in government loans by Chrysler, Fiat’s ownership in the former shot up from 30% to 46% last week.

The Italian automaker expects to gain an additional 5% stake in Chrysler during the fourth quarter on building a fuel-efficient car for the latter. Fiat intends to exercise an option to purchase the remaining stake of U.S. government, bringing its total stake to 57%.

As part of Chrysler’s bailout deal in 2009, the U.S.Treasury had bestowed Fiat with managerial control and 20% ownership of the company. Under the deal, Fiat was allowed to increase its stake in Chrysler to 51% and beyond.

Fiat can also exercise an option to buy up to 40% of the interest held by VEBA starting in July 2012 and through the end of 2016. The company can acquire up to 8% of the VEBA stake once every six months.

Soon after acquiring the majority ownership, Fiat expects to appoint the majority of Chrysler’s board of directors and can direct the timing of events, including a possible initial public offering (IPO).

Fiat’s ownership helped Chrysler turn profitable for the first time since the taxpayer bailout. In the first quarter of 2011, the Detroit-based automaker posted a profit of $116 million for the first time since 2006. It compared with a net loss of $197 million in the year-ago quarter.

Operating profit, excluding taxes, interest and pension-related costs, more than tripled to $477 million from $143 million a year earlier. The higher profit was attributable to higher sales and better pricing and mix.

Chrysler anticipates to earn between $200 million and $500 million in 2011, which would help the company hold an IPO later this year or early next year. It also expects to save $100 million in the second half of 2011 due to its debt refinancing and incur charges of about $500 million associated with paying off the loans early.

Chrysler is the third Detroit automaker after General Motors Co. (GM) and Ford Motor Co. (F) to report a profit after the global economic crisis. General Motors has already reported four profitable quarters while Ford recorded its eighth consecutive quarterly profit last week.

Ford posted a profit of $2.61 billion or 62 cents per share during the first quarter that was the best since the same quarter of 1998. Its profit rose from $1.76 billion or 46 cents per share in the first quarter of 2010. General Motors will release its first quarter results this week.

 
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