Chrysler Group LLC, the automaker managed by Fiat SpA, projected its sales would grow by a third in 2011, outpacing gains by the industry in a recovering market on the strength of revamped models.

Fiat also expects to clear two milestones in Chrysler's turnaround that could allow it to take a majority stake in the No. 3 U.S. automaker this year under the terms of a bailout negotiated with the U.S. Treasury in 2009.

Chrysler is racing to refinance its bailout loans ahead of an initial public offering of stock expected in the second half of this year. The IPO is a key part of the automaker's recovery plan after its 2009 bankruptcy filing and near-collapse.

2011 needs to be characterized as the year of execution, Chief Executive Sergio Marchionne told analysts and journalists during a conference call. We need to execute on what we promised to do.

Fiat shares gained about 1.5 percent.

Chrysler, which is now 25 percent owned by Fiat, projected it will sell 2 million cars and trucks worldwide in 2011, up from a little more than 1.5 million in sales in 2010.

The 2011 sales projection is lower than the forecast of 2.2 million Chrysler provided in November 2009 during a presentation of its five-year turnaround plan.

But lower-than-expected costs will allow the company to post a profit with 2 million vehicles in global sales, executives said. In its plan, Chrysler initially expected to break even at 2 million vehicle sales.

The automaker forecast net income between $200 million and $500 million for 2011. Marchionne has said Chrysler must report a couple quarters of net income before an IPO.

The company expects 2011 revenue to jump by nearly one-third to $55 billion. It forecast an operating profit of around $2 billion for the year.

Chrysler forecasts an almost 10 percent gain in industry-wide U.S. auto sales in 2011, an outlook Marchionne called conservative.

'CHRISTMAS DAY WISH'

As part of a deal signed with U.S. Treasury, Fiat can increase its ownership in Chrysler if it meets three tests designed to put Chrysler on sounder footing.

Chrysler Chief Financial Officer Richard Palmer said the company would meet all of the tests by the second half of this year, bringing Fiat's ownership to 35 percent.

Fiat may take a 51 percent stake in the company if Fiat repays its loans to the U.S. government. During the call, Marchionne described that as his Christmas Day wish.

The loans from the U.S. and Canadian governments bear high interest rates that have undercut Chrysler's profitability in the last few quarters. The company paid $1.23 billion in interest in 2010.

Chrysler has said it must refinance these loans before a public offering. During the call, Marchionne said preliminary talks with financial advisers suggest its interest rates could be significantly lower.

Marchionne said Chrysler was seeking $3.5 billion in subsidized loans from the U.S. Department of Energy. Chrysler's larger rival General Motors Co said last week that it was no longer seeking those low-interest loans.

I have neither the arrogance nor the cash to show any disdain toward the DOE process, Marchionne said.

Chrysler has said its application with the Department of Energy had been bogged down by questions over collateral.

Marchionne said talks involving both the Department of Energy and the U.S. Treasury were ongoing.

FEWER FLEET SALES

Separately, Chrysler said it would dole out bonuses to employees represented by unions in the United States and Canada next week based on its exceeding financial targets.

Marchionne declined to say how large the employee bonuses would be. Ford Motor Co said last week it would pay an average bonus of $5,000 to factory workers represented by the United Auto Workers.

For the fourth quarter, Chrysler reported an operating profit of $198 million when stripping out high interest expenses. Its fourth-quarter revenue was $10.76 billion, up 14 percent from the year ago.

The key to Chrysler's revival will be the commercial success of its 16 new and revamped models, including the 2011 Jeep Grand Cherokee and the Chrysler 300 sedan, executives and analysts have said.

Chrysler has been criticized for its reliance on bulk sales to rental agencies, governments and businesses. Such sales are typically less profitable than sales to consumers.

But fleet sales fell in the fourth quarter compared with both the third quarter 2010 and the year-ago period, according to Chrysler and industry tracker TrueCar.com.

Retail sales to consumers are likely to jump in 2011 due to Chrysler's spruced-up vehicle portfolio, IHS Automotive analyst Rebecca Lindland said.

From a long-term investor standpoint, the banks that are going to refinance their debt prefer to see a higher retail rate, Lindland said.

(Reporting by Deepa Seetharaman; Editing by Derek Caney, Maureen Bavdek and Matthew Lewis)

Canada Chrysler