The federal and Ontario governments have sold their remaining stakes in auto maker Chrysler Group LLC to its parent company Italian car producer Fiat SpA for $140-million (U.S.).
The sale, announced Thursday, is essentially the final repayment of Canadian government loans to the auto maker two years ago as part of a $1.7-billion bailout to help the Detroit company survive the North American auto sector's worst downturn ever.
The two Canadian governments received about a 1.7 per cent stake in Chrysler when they initially made the loans, as part of a wider bailout led by the United States government.
The help for Chrysler, and an even larger financial package for industry giant General Motors Corp. by the three governments, saved both North American car makers and their Canadian operations from collapse.
Chrysler and GM slimmed down their operations and cut plants and thousands of jobs in both countries to become more competitive. However, Ottawa and Ontario estimate that 52,000 Canadian jobs were protected by government help for the battered auto sector.
Car sales collapsed during the 2008-09 recession and the global credit crunch that ensued, making it difficult for consumers to finance car purchases and saddling the industry with billions of dollars in losses.
Both GM and Chrysler are now doing much better, with more competitive new models and far lower pension and labour costs. At Chrysler, the company is now being run by Fiat, which is helping to introduce new smaller fuel-efficient cars into the U.S. market.
Federal Finance Minister Jim Flaherty said the sale marks an important step in the turnaround of the U.S.-based car maker, which recently repaid its loans to the U.S., Canadian and Ontario governments.
"Chrysler's recent repayment of its loans was an important step in the turnaround of this company," Mr. Flaherty said in a joint statement from the two governments.
"Canada has now sold its remaining interests in Chrysler Group LLC to Fiat for $140-million, fulfilling our commitment to exit from ownership of Chrysler as quickly as possible while maximizing value for taxpayers."
Canada gets $125-million for its stake, plus an additional $15-million from an agreement between the U.S. Treasury department and the UAW Retiree Medical Benefits Trust.
Ontario will get one-third of the $140-million, or about $47-million, for its contribution to the Chrysler bailout. It will use the money to pay down its huge deficit "The auto sector is a key driver of the Ontario – and the Canadian – economy," Ontario Finance Minister Dwight Duncan said.
"Working together, our governments helped keep people employed, allowing them to continue to provide for their families."
Chrysler Canada, based in Windsor, Ont., employs more than 8,000 people and has assembly plants in Windsor and Brampton, northwest of Toronto, as well as parts operations.
Meanwhile, the U.S. Treasury Department said Thursday it has also exited its investment in Chrysler after Fiat purchased the U.S. government's remaining holdings in the auto company.
Fiat paid $560-million (U.S.) to the Treasury Department for the government's 98,000 shares. Fiat has run the company since it emerged from bankruptcy protection in June, 2009.
Treasury provided a total of $12.5-billion to Chrysler and its financing arm after the recession hampered auto sales and sent Chrysler and General Motors to the brink of collapse. The funds came from the government's $700-billion bank bailout fund.
Since then, $11.2-billion of the assistance has been repaid, Treasury says. Chrysler repaid $5.1-billion in loans from the government in May. Treasury said it likely won't recover the remaining $1.3-billion.
Chrysler has made a remarkable turnaround from two years ago, when it was rescued by the government.
The company earned net income of $116-million in the first quarter and is forecasting 2011 earnings of $200-million to $500-million. Under the leadership of Fiat CEO Sergio Marchionne, the company has cut costs and revived its sales by refurbishing most of its lineup of Jeep, Chrysler, Dodge and Ram vehicles.
Its sales rose 30 per cent in June compared to the previous year.
The purchase of the government's stake gives Fiat 52 per cent ownership of Chrysler. That's likely to rise to 57 per cent before the end of the year when Chrysler begins producing a 40 mpg small car in the U.S.
Fiat received a 20 per cent stake in Chrysler after the bankruptcy in exchange for management expertise and technology. The Italian auto maker has gradually raised its stake by meeting benchmarks set by the government.
With files from The Associated Press