“The addition of these six franchises demonstrates our ongoing efforts to grow our business while further diversifying our brand mix,” said Earl J. Hesterberg, Group 1′s president and chief executive officer. “We are especially excited about increasing our partnership with Volkswagen of America following our successful acquisition of Metro Volkswagen in the Dallas market earlier this year.”

In total, the six franchises are expected to generate $188 million in estimated annual revenues, company officials said. David Taylor Cadillac Buick GMC is expected to add about $110 million in estimated annual revenues and complements the 11 existing dealerships that Group 1 operates in the Houston-Metro market area, reported F&I and Showroom magazine.

The Volkswagen Kearny Mesa and Beaumont franchises were awarded to Group 1 by Volkswagen of America. They represent new operating locations for Volkswagen in those markets, according to Group 1. The company anticipates that the two dealerships will add approximately $73 million in estimated annual revenues.

In August, Group 1 opened Sterling McCall Fiat in Houston, which is expected to generate $5 million in estimated annual revenues, according to the company. The three awarded franchises will be located in existing facilities alongside current operations and will be modified to the manufacturer’s image requirements.

Marchionne is also CEO of partner Chrysler Group LLC, which, as a private company, is not required to disclose executive salaries. Spokesman Gualberto Ranieri said Marchionne gets a small stipend as a member of Chrysler’s board but does not draw a salary as chief executive.

“The man works exceptionally hard, crisscrossing the globe, managing two companies,” said analyst James Bell of Kelley Blue Book in Irvine, Calif. “He is pushing his philosophies and work ethic into Chrysler and employees speak highly of him.”

Ranieri noted Marchionne’s pay from Fiat will likely continue to lag those of top executives at Ford Motor Co. and General Motors Co., which have yet to disclose 2010 compensation figures, reported The Detroit News.

In 2009, Ford CEO Alan Mulally’s compensation totaled $17.9 million, and Marchionne earned about $6 million from Fiat.

GM has said CEO Dan Akerson will be paid about $9 million annually in total compensation, the same as his predecessor, Ed Whitacre Jr.

There is a $500,000 salary cap on Chrysler’s top 25 executives as one of the conditions of its government bailout. Fiat executives who have a management role with Chrysler as well can continue to be paid by Fiat.

In Italy, Marchionne earned a base salary of $4.2 million (3.05 million euro) last year, unchanged from 2009. But his compensation declined overall, in part because he earned a $1.87 million bonus in 2009, but was not paid a bonus in 2010.

In 2006, the Fiat board approved an eight-year stock option plan for Marchionne, including 5 million in options that could be redeemed over four years at 13.37 euro if performance targets were met.

Marchionne started 2010 with 19.42 million options, but many expired and he ended the year with 16.82 million. He has until November 2016 to exercise them at an average price of 9.09 euro, higher than today’s trading price of about 7 euro.

Marchionne’s term as CEO of Fiat expires in 2012. He has said he will not continue to hold the top job at both automakers indefinitely but has not said which set of responsibilities he plans to give up.

Chrysler recently provided performance awards to its workforce: $750 on average for unionized hourly employees and $10,000 on average to salaried employees. The top 50 earners did not receive a bonus.

Chrysler lost $652 million in 2010, but made $763 million on an operating basis.

“The pricing is the pricing,” said Laura Soave, head of the Fiat brand in North America. “The younger generation doesn’t haggle. They don’t feel comfortable with it. They hate the experience.”

Dealers have been given advertising standards that include prohibitions on promoting vehicles for less than the manufacturer’s suggested retail price, Soave said during an interview this week in San Diego. While automakers typically can’t prohibit discounts, the company limited the number of U.S. Fiat franchises to minimize competition among dealers, reported Bloomberg.

Chrysler, operated by Fiat SpA, is bringing the 500 and the Italian automaker’s namesake brand to the U.S. market at the same time as it prepares to sell a redesigned Chrysler 300 flagship sedan. The Auburn Hills, Michigan-based automaker may report a fourth-quarter loss of $99 million on Jan. 31, the average of three analysts’ estimates.

The vehicles are among 16 models Chrysler has refreshed or redesigned in the past year, most of which are just going on sale.

The 500 and redesigned 300 “really represent that this company is coming together,” said Rebecca Lindland, an industry analyst with IHS Automotive.

The automaker is more than one year into a five-year turnaround that’s supposed to return the company to profitability this year.

Clam-Shaped Hood

Fiat has already sold 500,000 of the 500 cars since 2007 in other parts of the world. The small car and its clam-shaped hood evoke the 500’s iconic design of more than 50 years ago.

Unlike the original, the small engine is in the front of the car. Engineers also worked to update the new 500 to U.S. tastes, including the addition of an automatic transmission, glove box and cup holders.

Early buyers of the 500 will have a greater interest in the manual transmission, which will get 33 mpg in combined city and highway driving, while eventually the majority of buyers will prefer the automatic transmission, Soave said.

Younger drivers “never learned how to drive a manual and they have no interest in driving a manual,” she said.

The Fiat 500, already being made in Mexico, will start at $15,500, not including the destination charge. Chrysler has said it expects to sell 50,000 of the cars in North America. Company executives expect to make additional money on the sale of accessories.

Demonstration units have begun arriving in showrooms, she said, and a marketing push is planned for March.

Customer Service

Early next month, Chrysler is bringing together about 300 people from the 130 U.S. Fiat dealerships for special training in handling customers and selling the car which can be configured in 500,000 ways, Soave said.

Dealers “need to be able to take the customers and show them how to accessorize the vehicle,” she said.

The sales “consultants” will take on non-traditional roles, including being the customer’s contact point for vehicle service, she said.

Carl Galeana, who will open Fiat franchises in Michigan and Florida, said he’s seeing a lot of excitement for the 500.

“The passion for a Fiat is much bigger than I thought,” he said in a telephone interview.

Like Saturn

Chrysler’s efforts to set up Fiat reminded him of how the predecessor of General Motors Co. went about setting up Saturn, Galeana said. He was a Saturn dealer until the Saturn brand was ended as part of GM’s bankruptcy in 2009. The Saturn experience included no-haggle buying.

“Customers, quite frankly, liked that process,” he said.

No-haggle policies can be effective if consumers feel like they’re getting a good deal already, Lindland, the industry analyst, said.

“Taking that haggling aspect out of it is a really smart move,” she said.

Chrysler expects the market for small cars in North America to more than double to 896,000 vehicles in 2014 from 442,000 last year, Soave said.

Consumer interest in small cars may not keep up with the number of new entries.

“The 500, right now I think, is more symbolic” for the return of the Fiat brand, Jeremy Anwyl, chief executive officer of automotive website Edmunds.com, said in a telephone interview. “I don’t see it as a massive volume car.”

While Soave is busy preparing dealers for a small car, Chrysler is also preparing them for the 300 large sedan.

New Book

Chrysler executives call the 300 and the 200 convertible “Chapter 2” of rebuilding the namesake brand. The first chapter was unveiled in November with the redesigned and renamed 200 mid-sized sedan — previously called Sebring — and the refreshed Town & Country minivan.

This is “our opportunity to tell the world that you don’t have to cross an ocean to get a great car,” Olivier Francois, head of the Chrysler brand, said this week in San Diego.

The new 300 starts at $27,170, excluding destination charges. The previous model’s starting price was $27,260, according to Chrysler’s website.

Chrysler’s average incentive spending on the 300 last year rose to $5,042 from $4,765 in 2009, according to researcher Autodata Corp. The industry average for passenger cars last year was $2,563.

Chrysler plans to pull back on incentive spending with the new vehicle, Francois said in an interview earlier this month.

“We choose to be very transparent,” he said. “We are going to aim for both loyal customer targets and to conquest.”

Fiat said in a statement that it had raised its ownership in Chrysler to 25 percent from 20 percent at no financial cost under the terms of a deal that had been negotiated with the U.S. Treasury as part of Chrysler’s bailout, reported Automotive News.

The announcement, which came as Chrysler showed off new and revamped vehicles at the Detroit auto show, increases the likelihood that Fiat will own a majority of Chrysler by the end of the year.

Marchionne said he and other Chrysler executives would begin more intensive meetings with Wall Street bankers in the current quarter to prepare for an IPO expected by the end of the year.

Refinancing a priority

The immediate priority will be to develop a plan to refinance Chrysler’s bailout debt to the U.S. Treasury, Marchionne said.

“We have spent some time with the financial institutions the last two or three months and we are going to get into a much deeper discussion in the first quarter of 2011 as to how to get that done,” Marchionne told Reuters Insider.

“I am expecting that by the second quarter of this year we will have a plan that we can announce,” he said, speaking on the sidelines of the Detroit auto show.

Marchionne said it was possible that a Chrysler IPO could come before the fourth quarter, but that would depend in part on the strength of the stock market. “I think we need to do some more work before we open our trap,” he said.

Marchionne said he hoped that Fiat’s progress in restructuring Chrysler since it took control of the automaker in 2009 would silence the skeptics and win over potential investors and creditors.

Chrysler used the Detroit auto show — the industry’s largest trade show — to showcase a redesigned and re-engineered version of its 300 sedan as well as a revamped mid-size sedan now known as the 200 and a refreshed version of its minivan.

“I think we’ve proved over the last 19 months what this group can do. A lot of people were incredibly skeptical about our ability to launch all of these products within a short period of time,” Marchionne said.

Winning approval

Fiat was given management control of Chrysler and an initial 20 percent stake with the opportunity to raise its holdings to 35 percent by meeting certain performance targets set by the Obama administration.

By winning approval to build a Fiat-designed, fuel-efficient engine at a Chrysler plant in Dundee, Mich., the Italian automaker was cleared to raise its stake in Chrysler to 25 percent.

If Fiat helps Chrysler increase sales outside North America and builds a vehicle in the United States that achieves 40 miles-per-gallon in fuel efficiency, the Italian automaker can raise its stake in Chrysler to 35 percent.

Fiat recently spun off its truck and tractor division now known as Fiat Industrial. That spin-off was seen as clearing the way for the creation of a bigger trans-Atlantic auto group led by Marchionne.

Chrysler executives said they hope the second-generation 300, which had been developed in part before the automaker’s bankruptcy, would win back luxury consumers who would not have considered its vehicles in recent years.

The first-generation 300 was a smash debut for Chrysler five years ago but the automaker was criticized for not investing enough in refinements to keep it competitive with newer full-size sedans from rivals like the Taurus from Ford Motor Co.

Chrysler Group LLC, the U.S. automaker operated by Fiat SpA, may repay its U.S. and Canadian government loans before 2013, allowing the Italian automaker to take a 51 percent stake, the companies’ top executive said.

“It’s one of the options that we’re looking at,” Sergio Marchionne, who is chief executive officer of both Chrysler and Fiat, said yesterday. “It’s not required to go public.”

Fiat, which holds 20 percent of Chrysler, aims to increase that stake to 35 percent next year by achieving milestones outlined in the Auburn Hills, Michigan-based automaker’s restructuring last year, Bloomberg reported. Marchionne said on Sept. 16 that he will probably take Chrysler public in the second half of 2011.

The CEO has also said he wants to improve Chrysler’s capital structure before the initial public offering and that it may include refinancing the automaker’s U.S. and Canadian government loans, which have effective interest rates as high as 20 percent. Interest payments have kept the company from posting a net income, he has said.

Fiat rose as much as 41 euro cents, or 3 percent, to 13.98 euros and was up 2.7 percent as of 11:57 a.m. in Milan trading. The stock has gained 36 percent this year, valuing the Turin, Italy-based carmaker at 16.7 billion euros ($22 billion).

$7.46 Billion Owed

The face value of Chrysler’s debts to the U.S. and Canadian governments is about $7.46 billion. Some of Chrysler’s government loans mature by the end of next year while the majority mature in 2017, according to the U.S. company’s third- quarter financial statement.

Repaying those loans would allow Fiat to exercise an option to buy an additional 16 percent of Chrysler’s equity and raise its position to a 51 percent majority. Fiat may save as much as $2 billion by doing so before holding an IPO of Chrysler stock, Barclays Capital said last week in a research report whose lead author was Kristina Church, an industry analyst.

Fiat can’t raise its position beyond 35 percent until 2013, the Italian manufacturer has said.

It may be possible for Fiat to take advantage of the 16 percent option before 2013 if it pays off the government loans first, Church said in the note, co-written with Brian Johnson, another Barclays analyst. Fiat executives have been traveling across Europe to promote the spinoff of the Fiat Industrial SpA heavy-truck and tractor business.

‘We’ll See’

Asked if Fiat wants to use the 16 percent option in advance of a Chrysler IPO, Marchionne said: “We’ll see.”

The reduction of Chrysler’s interest cost and creating a stable capital base are more important than increasing Fiat’s ownership stake, Marchionne told reporters yesterday while visiting a Chrysler plant in Sterling Heights, Michigan.

“My option is not going to die tomorrow,” he said.

Prices for the Chrysler stake are based on multiples of earnings before interest, taxes, depreciation and amortization, or Ebitda.

“Fiat has the option to acquire another 16 percent of Chrysler for a multiple, if it is pre-IPO, that does not exceed Fiat’s own multiple — which, after the spin-out and a potential sale of Ferrari, is likely to be well below that of” U.S. peers such as Ford Motor Co., Church said.

Her report goes on to say that if Fiat were “to wait until after an IPO to exercise its 16 percent option, it would likely pay a higher multiple than its own multiple.”

IPO’s Timing

Fiat has leverage to encourage such a scenario through its ability to delay the Chrysler IPO until after January 2013, Church said.

“If any of the non-Fiat stakeholders want to see an IPO prior to 2013, Fiat could require them to consent to a refinancing and repayment of the government loans to allow Fiat to exercise its option,” Church said.

Chrysler’s majority shareholder is the United Auto Workers union trust for retiree health care.

Marchionne is spinning off Fiat Industrial to focus on carmaking and the Chrysler turnaround after the U.S. automaker’s bankruptcy reorganization last year.

Fiat may sell its auto-parts division Magneti Marelli SpA and a stake in Ferrari SpA before consolidating with Chrysler, analysts, including Erich Hauser of Credit Suisse, have said Marchionne told them.

Sterling Heights Investment

Marchionne spoke yesterday at an event celebrating the production of the new Chrysler 200 and refreshed Dodge Avenger midsize sedans. Chrysler invested $850 million in the Sterling Heights plant for a new paint shop, machinery and other equipment, a decision that reversed a plan to close the factory. A second shift is slated to begin in the first quarter of 2011.

The plant will get new midsize cars in 2013, Marchionne said. The company hadn’t specified the vehicle type before.

He also said Chrysler’s assembly plant in Detroit, which makes the Jeep Grand Cherokee, will begin building a Maserati sport-utility vehicle in 2012.

Once dealers fulfill the requirements of the letter of intent and provide the facilities they promised in proposals made to Chrysler, they can begin taking orders for the Fiat 500 small car, which is being introduced in North America here at the Los Angeles Auto Show.

Though a few North American spec Fiat 500s will arrive in dealerships in December, none will be delivered to customers until January. A volume market launch is planned for March.

The 500 will be designated a 2012 model, said Ralph Kisiel, Chrysler spokesman.

Chrysler plans to name additional dealers to boost the total Fiat network to about 165. Chrysler chose dealers from 119 markets it identified as having strong growth potential for small car sales over the next five years. All dealers on the initial list hold Chrysler franchises.

More franchises to come

Chrysler is talking to additional dealers, some of which are non-Chrysler Group franchisees.

Chrysler began awarding letters of intent on Oct. 20 but did not release a full list until today.

The dealerships will carry the same naming nomenclature. All will be known as Fiat of (Fill in the city name). The showroom will be called the Fiat Studio, where trained Fiat specialists will help consumers custom order their cars. Accessory sales will also be a big part of the operation.

The letter of intent is the first step to getting the franchise. Dealers must make the investments they promised Chrysler to obtain the franchise, Kisiel said.

The Fiat 500 will be manufactured at Chrysler’s plant in Toluca, Mexico. The initial version will be a two-door hatchback, which goes on sale in January as a 2012 model. Chrysler plans a convertible version sometime next year, and an Abarth sporty version in 2012, followed by an electric version.

Fiat dealers may also get the Alfa Romeo franchise, scheduled to return to America in 2012.

AutoNation leads the way

Among the big winners on the list was AutoNation Inc., the nation’s largest publicly traded dealer group, which received seven letters of intent. Mike Jackson, AutoNation CEO, has been bullish on the prospects for Fiat.

AutoNation earlier announced it had been awarded the seven letters of intent.

“We are excited about the Fiat product,” AutoNation spokesman Marc Cannon said. “The Fiat 500 clearly will resonate with the American consumer. As gas prices continue to creep up, we will be well positioned to benefit.”

Chrysler expects to sell 50,000 Fiats in 2011 in the United States, growing to a peak of about 78,000 in 2013. For comparison, Mini sold 54,077 U.S. units in 2008 before the recession.

The modern version of the 500, which is an Italian icon, went on sale in Europe in 2007. The North American version will receive a number of modifications. Unlike the European version, its 1.4-liter FIRE (Fully Integrated Robotized Engine) will get Fiat’s MultiAir technology, which optimizes engine performance in all operating conditions.

Fiat claims it improves performance and fuel economy by roughly 10 percent. The suspension and interior have also been modified for American tastes.

Fiat last sold vehicles in the United States in 1982.

Chrysler owes the U.S. and Canadian governments $7.4 billion and Chief Executive Officer Sergio Marchionne has said interest on that debt has kept the automaker from earning a profit in the first half of this year. Fiat, which he also runs, can’t have a majority stake until Chrysler has repaid the money borrowed as part of last year’s bankruptcy and reorganization.

The third-largest U.S. automaker’s board is looking to refinance U.S. and Canadian government loans as it considers the proper debt level for the company, Marchionne said last week. The company approached banks about valuation and loans in recent months, said the people, who asked not to be identified because the discussions were private.

“What he wants to do clearly is refinance it and take advantage of the extraordinarily low level of interest rates,” Joseph Phillippi, principal of AutoTrends Inc., a consulting firm based in Short Hills, N.J., said in a telephone interview. “Getting the company’s financial footing in a much stronger position is clearly going to benefit him.”

Chrysler, based in Auburn Hills, Mich., has said its effective interest on the money borrowed from the U.S. government is as high as 14 percent and as high as 20 percent on the Canadian loans.

The Italian auto maker will achieve an annual net profit of about €400 million ($555 million) rather than nearly breaking even, Fiat CEO Sergio Marchionne said in a conference call. The revision comes after Fiat’s third-quarter profit climbed to €190 million from €25 million a year earlier. Revenue rose 12% to €13.5 billion.

Marchionne, who also serves as Chrysler’s CEO, said a Fiat-based sedan carrying the Dodge badge will be built in the U.S. and debut by the end of 2011. The sedan will include a model that achieves 40 miles per gallon.

Building a 40-mpg car in the United States is one of the goals of Fiat’s alliance with Chrysler as set by the U.S. government’s auto-industry bailout last year. In order to raise its Chrysler ownership stake to 35 percent from 20 percent, Fiat must help Chrysler build the high-mileage car, develop a more fuel-efficient engine and expand sales outside North America.

“Within 2011, we should get to the 35 percent number barring unforeseen circumstances,” Marchionne said.

However, the CEO took a step back on whether he would move to raise the ownership stake in the future to 51 percent because Chrysler’s capital structure is still being worked out.

“It may very well be that Fiat, on the basis of its assessment of the ongoing profitability and prospects for Chrysler, may consider that to be a wise investment,” Marchionne said. “I can tell you right now that I am not at that stage.”

Fiat was the second European car maker this week to raise earnings targets after France’s PSA Peugeot-Citroen’s move Wednesday.

By the end of this year Fiat will split into two companies: Fiat SpA for passenger vehicles and Fiat Industrial SpA for its Iveco and CNH operations, which make trucks and farm equipment. Fiat Industrial is waiting for regulatory approval to list its stock Jan. 3 in Milan where Fiat also is listed. CNH will keep trading separately in the U.S.

Marchionne also brought some clarity to the issue of debt distribution between the two new companies, saying Fiat Industrial would likely take on 60 percent of it. Fiat’s net industrial debt was €4 billion at the end of the quarter. The figure is expected to fall slightly below €4 billion by the end of the year.

Fiat’s stock ended 4.4 percent higher at €12.24 in Milan, the highest level in two years. The market expected Fiat to raise full-year guidance but “the magnitude was bigger” than envisaged, UBS analyst Philippe Houchois said in a research note.

Golling Chrysler Jeep Dodge Ram in Bloomfield Hills; Carl Galeana’s Van Dyke Dodge in Warren and his dealership in Fort Myers, Florida; and David Fischer’s Novi location of the Suburban Collection initially will be the only ones authorized to sell the Italian brand in Michigan.

Chrysler, which partnered with Fiat SpA when it emerged from bankruptcy in 2009, first wants about 165 locations in 119 metro markets as the only product they will have to sell is the tiny Fiat 500 hatchback. The car will be unveiled to the public in November at the L.A. auto show.

But, by the end of 2012, when there are more versions of the 500 as well as additional and larger Fiat models, the plan is to increase the number of dealerships to 200 locations, which could include another Michigan franchise.

Those dealers would also be in line to add the Alfa Romeo brand when it returns to the U.S. market in 2012.

The three Detroit-area dealers have been notified they are part of the original rollout and will prepare their facilities and get ready to take orders for the tiny car that goes on sale in December. A marketing launch is planned for March when production and volumes will have ramped up. So far, Chrysler is still producing pilot versions of the car at its Toluca, Mexico plant, which will soon be followed by models authorized for sale.

The majority of dealers are being notified today. The rest, many of whom had incomplete proposals, will be named by year’s end.

“We have carefully considered each of these dealer proposals looking for the best locations and the most creative plans,” said Peter Grady, Chrysler vice president of network development and fleet operations.

“We are thrilled with their level of interest in securing the Fiat franchise and in the innovative proposals they have submitted. We’re excited to be at the point where we now can start appointing our Fiat dealer network,” Grady said.

About 400 dealers gathered in Detroit on Aug. 30 to learn more about the plans for the Fiat brand and what the automaker requires from its franchises in terms of facilities, staff, training, marketing, inventory and parts. Interested dealers had until Sept. 22 to submit a proposal.

Chrysler says it also will look at proposals from dealers outside the Chrysler network who have expressed interest in a Fiat dealership. They are unsolicited proposals that are being considered, said spokesman Ralph Kisiel. The automaker is not seeking additional proposals.

“We are looking for a customer experience that is as unique and personalized as the Fiat 500 itself,” said Laura Soave, head of Fiat Brand North America. “Some of the proposals are extremely creative, and in many cases, not only met but exceeded our expectation.”

Dealers must have a separate sales area to sell the Fiat 500 but can initially use Chrysler service bays.

The franchises are located in cities with strong, small-car registrations and potential small-car sales growth over the next five years. They represent 37 states and Puerto Rico.

Detroit is the only city in Michigan. Florida, New York and California have the most cities slated to get Fiat dealers.

Projected Fiat volumes are small. Chrysler will build about 120,000 500s annually, and half that for South America. The 500 will be followed by a 500 convertible next year, and electric and performance Abarth versions in 2012.

The Italian automaker stopped selling Fiats here in 1983 and ceased mainstream Alfa Romeo sales in 1995. Sales continue of the more exotic Ferrari and Maserati brands and the low-volume Alfa Romeo 8C sports car.

Speaking on the sidelines of the Paris auto show, Marchionne said that sales in September had not gone very well but that results in the third quarter would be better than expected.

Fiat had previously said it expected the group to be close to break even in 2010 in terms of net profit.

The integration with U.S. automaker Chrysler must be completed before the group looks at any other tie-up options, Marchionne said.

Fiat owns 20 percent of Chrysler and has options to raise its stake to 35 percent and then 51 percent.

Marchionne said the group’s Fiat Industrial arm is open to any strategic alliance that strengthens the business.

The Italian group is splitting its autos and industrial businesses in a move aimed at transforming the company into a global car player.

A sale of Fiat’s Alfa Romeo brand is not being discussed, Marchionne said, adding that a bourse listing for the group’s Ferrari unit is a possible option but there were no plans for this at the moment.

Volkswagen’s chairman had on Wednesday expressed interest in buying Alfa Romeo.