Chrysler Group LLC, the U.S. automaker run by Fiat SpA, has contacted banks about borrowing money before a possible initial public offering next year, two people familiar with the effort told Bloomberg.

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.

MILAN — Italy’s Fiat SpA said it now expects to be profitable this year and confirmed that Dodge next year will sell the first Fiat-based car for Chrysler Group LLC, Fiat’s alliance partner, reported The Wall Street Journal.

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.

AUBURN HILLS, Mich. — Chrysler Group LLC is notifying dealers that have been chosen to sell the Fiat brand in the United States, including three from Metro Detroit, reported The Detroit News.

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.

PARIS – Fiat S.p.A. expects to raise its 2010 targets and will report a net profit this year, CEO Sergio Marchionne said on Thursday, Reuters reported.

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.

DETROIT – Ally Financial will be the preferred consumer lender for Fiat vehicles sold in the United States, Chrysler Group confirmed today in a press release.

Chrysler had already told dealers that Ally, formerly known as GMAC, will offer floorplan packages for Fiat dealers, along with real estate and working capital loans.

Ally is also the preferred wholesale and retail lender for Chrysler Group’s brands, Chrysler, Dodge, Jeep and Ram.

After an absence of about a quarter century, Fiat is returning to the U.S. market with the 500 subcompact. The car will start arriving in dealerships in December, and the advertising and market launch is scheduled for March.

Chrysler is now combing through proposals from dealers who applied for Fiat franchises and is expected to announce its Fiat network in mid-October. Chrysler has said it will name 165 Fiat dealers. Those dealers will sign a separate franchise agreement and eventually will need separate Fiat facilities, including showroom space and service bays.

“This relationship will help dealers fund their new stores and inventory, while giving Fiat customers the opportunity to obtain retail financing through a trusted company,” said Fred Diaz, lead executive for U.S. sales of all Chrysler Group brands, in a prepared statement.

Tim Russi, executive vice president of North American Operations for Ally Financial, also issued a statement: “Ally Financial is accepting applications for wholesale credit lines from dealers who are awarded a Fiat brand franchise. At Ally, we know our primary role is to help dealers buy and sell more vehicles.”

Chrysler Group LLC says response from dealers seeking a franchise to sell vehicles from partner Fiat S.p.A. has exceeded its expectations.

Wednesday was the deadline to submit a proposal for a Fiat dealership. A final number was unavailable at the end of the business day because some proposals were still arriving.

Sergio Marchionne, CEO of Chrysler and Fiat, wants Fiat representation in 165 locations in the United States.

About 500 Chrysler dealers met in Detroit Aug. 30 to learn the requirements to become a Fiat dealer and gain an overview of the product and business plans through 2014, The Detroit News reported.

Bill Golling of Golling Chrysler Jeep Dodge Ram in Bloomfield Hills, Mich., is among those who are interested in selling Fiats.

He made sure his proposal, including conceptual drawings, met the deadline.

Golling said he left the August meeting with the impression that two dealers will be chosen for Metro Detroit, and he wants to be one of them.

He has a used car area, with a showroom and service area, that can be converted to a Fiat showroom in the short term, but recognizes the wisdom of a stand-alone facility in the future.

Production of the tiny Fiat 500 hatchback for North America begins in December in Mexico.

Future vehicles include convertible, sporty and electric versions of the Fiat 500. The Alfa Romeo brand will return to the United States with a mid-size car and crossover in 2012, followed by a larger SUV and luxury sedan, as well as some smaller cars.

“It’s exciting starting all over fresh,” Golling said.

Chrysler will begin evaluating the dealership proposals immediately.

“Now that we have the dealer proposals in hand, we move right into the process of reviewing them and then naming our Fiat dealers in a few weeks,” said Chrysler spokesman Ralph Kisiel.

Chrysler wants dealers to have a fully operational separate showroom in place with trained staff by February, before the marketing campaign gets under way in March, Kisiel said.