Fiat Shares Soar on Chrysler Buyout Deal

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Paul Sancya/APFiat CEO Sergio Marchionne.
By Agnieszka Flak
By Agnieszka Flak

MILAN-- Fiat shares jumped Thursday after it struck a $4.35 billion deal to gain full control of Chrysler Group, but doubts remained over whether the Italian carmaker can use the merger to cut losses in Europe.

Investors welcomed the deal struck by Chief Executive Officer Sergio Marchionne under which Fiat will buy the 41.46 percent of the No. 3 U.S. automaker it doesn't already own, without raising funds from the stock market.

Marchionne, who has run both companies since Chrysler's 2009 U.S. government-funded bankruptcy restructuring, aims to merge the two into the world's seventh-largest auto group.

However, analysts worried about how the deal will increase Fiat's already heavy debt burden, despite a relatively low price negotiated by Marchionne after more than a year of talks.

Fiat shares rose as much as 16 percent to levels last seen in August 2011 after the agreement, announced late Wednesday, %VIRTUAL-article-sponsoredlinks%which aims to combine the two automakers' resources and rejuvenate Fiat's product lineup.

"They paid less than the market had expected and there will be no capital increase to fund this, so no wonder the stock is flying," a Milan-based trader said.

"While it's still to be seen how this will bode for Fiat's future, this is a good start to the year for a company that has had quite a tough ride recently, especially in Europe."

Fiat will buy the stake in the profitable U.S. group from a retiree health care trust affiliated to the United Auto Workers union. The trust will receive $3.65 billion in cash for the stake, $1.9 billion of which will come from Chrysler and $1.75 billion from Fiat.

After the deal closes, Chrysler has committed to giving the UAW trust another $700 million over three years.

However, Citigroup (C) analysts said Fiat's debt would become the highest for any European motor manufacturer.

"Group net debt will rise to around 10 billion euros ($13.8 billion) upon completion of this transaction ... leaving it the most indebted [original equipment manufacturer] in Europe," they said in a note. "We continue to have concerns about the sustainability of this heavy debt burden."

Investments

It remains to be seen whether the merger will cut Fiat's losses in Europe, where the company had promised to break even by 2016. Marchionne's plan depends on Fiat's ability to share technology, cash and dealer networks with Chrysler, both easily and cheaply.

Chrysler and Fiat currently have to manage their finances separately. A full merger will make it easier -- but not automatic -- to combine the cash pools of the two companies, giving Fiat more funds to expand its product lineup.

Chrysler, which Fiat has been running since the bailout deal with the U.S. government, is now a profit centre for Fiat.

The Italian carmaker has been hurt by sagging sales in Europe, whereas those in Chrysler's North American home market have risen nearly 50 percent since 2009.

The deal raises expectations that it will allow investment in underused Italian plants and to launch new models in what analysts and ratings agencies expect to be a steadying market from 2014.

Fiat has plans to build Jeeps and a new line of Alfa Romeos in Italy for export to markets in Asia, Latin America and the United States to offset flagging demand in crisis-hit Italy.

But whether Marchionne will put billions of euros into Italy and Europe, where the group has lost much of its market position in recent years, or elsewhere is still uncertain.

"The bad news is that he's spent no money for the past two years at Fiat because he was waiting for this to happen," said a London-based analyst at a major investment bank.

"He's not getting any exposure to European recovery. The U.S. asset is not as good as its peers and needs money spent on it. Marchionne has shown he can get the job done but I'm still buying a dream."

By 1112 GMT (6:12 a.m. Eastern time) Fiat shares were up 12.4 percent at 6.68 euros, with traded volume four times the previous month's daily average.

-Additional reporting by Valentina Za in Milan and Laurence Frost in Paris.

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Fiat Shares Soar on Chrysler Buyout Deal

By Michael Zak | AOL Autos

A recent Interest.com study looked at the 25 largest metropolitan areas in the United States to see which median-income households in those respective areas can afford to purchase a new car, the average price of which was $30,550 in 2012, according to TrueCar. The study found that in only one city can residents actually afford a car with this sticker price -- Washington, D.C.

Households with an average income in Washington, D.C. can afford a payment of up to $628, which would allow for purchase of a $31,940 vehicle. The next closest city, San Francisco, can only afford $537 per month, equating to a $26,786.

While it's not news that Americans like to buy things that they can't afford, the data is a little surprising given how many great cars there are out there for well under $30,000. Solid hybrids, CUVs, sedans and sports cars can all be had for less than this.

We've racked our brains and come up with 5 of the best cars that are cheaper than the average car's purchase price. These are affordable, versatile, fun and fuel efficient. Of course, there are some stinkers in this price range, as well, so we've included 5 vehicles we think you should avoid.

Subaru BRZ

MSRP: $25,495 - $27,495
Invoice: $24,327 - $26,112
Fuel Economy: 22 mpg City, 30 mpg Highway

The Subaru BRZ proves that driving bliss doesn't have to cost a fortune. The rear-wheel drive sports coupe is one of the most engaging vehicles on the road today, with utterly superb dynamics and looks. The best part? You can have one for $25,495.

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Volkswagen Golf

MSRP: $18,095 - $25,200
Invoice: $17,371 - $24,192
Fuel Economy: 23 mpg City, 33 mpg Highway

Although the redesigned 2014 version of this handsome hatch will be on sale in the near future, the current generation is still worth buying. It's fuel efficient, fun and surprisingly versatile. Starting at less than $20,000, the Golf is also quite affordable.

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Toyota Prius v

MSRP: $26,650 - $30,295
Invoice: $24,809 - $28,202
Fuel Economy: 44 mpg City, 40 mpg Highway

The Toyota Pirus v is essentially a bigger version of the popular Prius hybrid. This hatchback acheives stellar fuel economy while allowing for transport of numerous people and all of their stuff. Starting at $26,650, you can have all the benefits of a versatile hybrid for an agreeable price.

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Mazda CX-5

MSRP: $20,995 - $28,595
Invoice: $20,396 - $27,771
Fuel Economy: 26 mpg City, 35 mpg Highway

The Mazda CX-5 is one of our favorite crossovers here at AOL Autos even when taking more expensive ones into account. Remarkably fun to drive, fuel efficient and starting at a low price, there's a lot to love about this agile utility vehicle.

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MSRP: $16,695 - $21,115
Invoice: $16,208 - $20,218
Fuel Economy: 28 mpg City, 38 mpg Highway

This small sedan continue to be the darling of both critics and consumers nationwide. Available with tons of standard features, great looks and sweet fuel economy, the Elantra is one of the best cars on the planet right now.

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MSRP: $18,995 - $32,820
Invoice: $18,770 - $31,334
Fuel Economy: 21 mpg City, 29 mpg Highway

The 200 is a holdover from when Chrysler was owned by Daimler and then private equity-firm Cerberus Capital. It's not that this car is awful, especially since the new Chrysler, managed by Fiat, made a series of improvements. It's that the other cars in this category are so good, and much better designed and engineered.

Research the Chrysler 200
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MSRP: $18,725 - $21,815
Invoice: $17,789 - $20,725
Fuel Economy: 23 mpg City, 31 mpg Highway

The Scion tC is intended to be a sporty coupe. The problem? It's not sporty. At all. In fact, the tC finds itself on the Consumer Reports list of the least fun cars to drive and we're inclined to agree with that assessment.

Research the Scion tC
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MSRP: $18,995 - $30,795
Invoice: $18,800 - $29,276
Fuel Economy: 19 mpg City, 26 mpg Highway

Short on features and with pretty poor driving dynamics, the Dodge Journey is one you should skip if you're shopping for a sub-$30,000 crossover. We're looking forward to Dodge's next attempt.

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MSRP: $25,900 - $29,200
Invoice: $24,452 - $27,507
Fuel Economy: 24 mpg City, 35 mpg Highway

Don't be fooled by the badge. This is not really a luxury car. With uninspired driving dynamics and a lackluster interior, you should pass on the ILX even though its low sticker price seems very tempting.

Research the Acura ILX
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MSRP: $12,490 - $17,890
Invoice: $11,616 - $16,638
Fuel Economy: 34 mpg City, 38 mpg Highway

The idea of the smart fortwo is great. It's the execution that's the problem. The fortwo is loud, terrible to drive and really isn't all that fuel efficient, considering its size. There are way better options between $10,000 and $20,000.

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