Why would Fiat Chrysler ever do a thing like that (allegedly)?
Before the creation of Fiat Chrysler Automobiles, Chrysler was not doing especially well. Then-owned by private equity firm Cerberus Capital Management, Chrysler LLC was plagued by numerous problems, among them a lack of new product, reliability issues, and overall poor vehicle interior fit and finish. Enter Fiat CEO Sergio Marchionne. The self-proclaimed "Capital Junkie" engineered a merger between the two automakers and quickly secured a US government bailout package. Marchionne sadly passed away last year but Fiat Chrysler is still thriving.
In fact, it's about to enter a 50-50 merger with the PSA Group to create the world's fourth-largest automaker. Italian tax authorities, however, are now claiming FCA underestimated Chrysler's value at the time of its acquisition by $5.6 billion, according to an Automotive News Europe report.
FCA, not surprisingly, disagrees. "We are confident we will successfully make the case for a material reduction in the assessment," an FCA spokesperson said in response. They also said that "any remaining taxable gain assessed would be offset by carrying forward tax losses with no material cash outflow or impact on earnings." This all goes back to October 2014 when Fiat SpA was finalizing its purchase of Chrysler and its Dodge, Ram, and Jeep brands. Italy's tax authority valued Chrysler at $13.8 billion. Fiat, however, declared its worth at about $8.3 billion.
In short, the Italian tax people want their money and they have reason to believe Chrysler and its brands were worth more than Fiat claimed. Jeep and Ram sales, led by the likes of the Wrangler SUV and 1500 full-size pickup truck, not only helped sustain Chrysler in its dark days but also later provided a sizeable chunk of Fiat Chrysler's sales and profit.
As FCA and PSA negotiate the final terms of the merger, the Italian tax authorities' audit comes at a very inconvenient time, to say the least. PSA states it is aware of the tax audit but does not expect it will harm the chances of a deal, assuming no other potentially harmful details emerge. FCA is also in hot water with GM. The latter sued FCA last month for allegedly bribing union officials to gain competitive advantages during contract negotiations. The lawsuit specifically names Marchionne for taking an active role in the alleged racketeering. FCA says GM's claims are false.
Combined with GM's lawsuit and now the Italian tax audit, FCA's lawyers are almost certainly working overtime.