By Deepa Seetharaman
DETROIT (Reuters) - Italy's Fiat SpA <FIA.MI> bought the U.S. and Canadian governments' stakes in Chrysler Group LLC, becoming the majority shareholder in the U.S. automaker with the ability to appoint more board members.
Fiat now has 53.5 percent of Chrysler on a fully diluted basis, up from 46 percent, Auburn Hills, Michigan-based Chrysler said in a regulatory filing on Thursday.
Fiat is on track to hold 58.5 percent of Chrysler by the end of the year.
A health care trust affiliated with the United Auto Workers and known as the VEBA holds the remaining shares of Chrysler.
The company and the union plan to begin negotiations on a new four-year contract on Monday. Chrysler reports quarterly earnings on July 26.
With majority ownership, Fiat now has the right to appoint a majority of the company's nine-member board. Sergio Marchionne, the chief executive of both automakers, is selecting a group of managers that will oversee both companies.
Fiat said in early June that it would buy the U.S. and Canadian governments' stakes in Chrysler.
Fiat paid the United States $500 million and Canada $125 million for their respective stakes.
The company also paid $75 million for the Treasury's option to buy shares held by the UAW retiree trust. Treasury got $60 million of those proceeds, while Canada got $15 million as part of a deal between the two countries.
"With today's closing, the U.S. government has exited its investment in Chrysler at least six years earlier than expected," Assistant Secretary for Financial Stability Tim Massad said in a statement.
Canada said it would remit one-third of its proceeds to the Ontario government.
FINAL TEST FOR CHRYSLER
The United States and Canada took equity positions in Chrysler during the U.S. automaker's bankruptcy restructuring in 2009. Fiat received a 20-percent stake.
As part of the 2009 bankruptcy deal, Fiat received the option to boost its stake in 5 percent tranches each time Chrysler met a performance target.
Chrysler is expected to meet the final test by the end of 2011, which would allow Fiat's stake to go up by 5 percent. The final test is the development of a Fiat-based car that can get 40 miles per gallon.
During the financial crisis, the U.S. Treasury loaned Chrysler $12.5 billion. In its bankruptcy, the company was split into two entities: the "old Chrysler" and the "new Chrysler," which is led by Marchionne.
In May, the new Chrysler fully repaid its bailout loans.
But the United States is likely to lose $1.3 billion that it had lent to the old Chrysler, Treasury said in a statement on Thursday.
Canada appears set to lose about C$800 million ($842 million).
Its bailout of Chrysler was worth C$2.9 billion and the total received in the transactions with Fiat as well as in loans repaid and interest is about C$2.1 billion, according to figures provided by a Canadian finance official.
"The return to taxpayers should be measured not only in terms of the proceeds from the sale of these financial interests, but also from the jobs and investments that were maintained due to governments' support to Chrysler," the official said.
(Reporting by Deepa Seetharaman; additional reporting by Rachelle Younglai in Washington and Randall Palmer in Ottawa, Editing by Robert MacMillan, Gerald E. McCormick and Tim Dobbyn)