Paying off Chrysler government loans will permit Fiat to gain a majority stake in the U.S. maker, but it will also help Chrysler shore up its bottom line, says Sergio Marchionne, the man managing both of the automakers.
Meanwhile, Treasury Sec. Timothy Geithner says the Obama Administration wants to see both Chrysler and General Motors back in private hands as soon as possible, though he says the fast-improving fortunes of the two makers can be seen as a victory for the White House, which successfully battled to keep the carmakers alive.
Chrysler/Fiat Chairman Marchionne announced yesterday plans to pay off the remaining $7.5 billion owed to the U.S. and Canadian treasuries. According to the executive, there has been plenty of interest among private lenders to provide the necessary funds.
“There isn’t any doubt there is interest in the capital markets,” he said. “Since we outlined them in November (2009), we haven’t missed any of our commitments or forecasts,” Marchionne told reporters after touring the Jefferson North Assembly plant in Detroit with Treasury Secretary Timothy Geithner.
A successful refinancing also would have a favorable impact on Chrysler’s profit statement, he stressed.
“I think it’s going to make a material difference on our profits,” said Marchionne, who has frequently complained about the high interest rate on the government loans. The Canadian-educated executive also said it was important for Fiat to support Chrysler by exercising its call option and investing $1.2 billion in its American affiliate.
Chrysler Group plans to use the proceeds of a new term loan facility and newly issued debt securities to support a private offering exempt from registration under the U.S. Securities Act of 1933. In addition, Fiat also expects to put $1.2 billion as part of the transaction, which will raise the size of its controlling stake in Chrysler to 46%.
“Of course I’m confident or else we wouldn’t have made the statement,” Marchionne said when asked about the prospects for the sales of debt securities required to pay off the government loans.
Paying back the government loans also should give Chrysler a boost in the eyes of consumers, he said. “There is no doubt this is going to be one of the benefits,” he said. The U.S. Treasury Department will get $5.3 billion while the Canadian government and Ontario provincial government will get $1.2 billion, Chrysler officials said.
“The whole objective is to turn this into a global auto company,” said Marchionne, who noted Chrysler executives are already being given expanded roles in the combined companies. However, he hedged when asked about the prospects for an initial public offering of stock. Chrysler hasn’t made any decision on the timing of an IPO, he said, a shift in his position as Marchionne had previously shown strong interest in staging the stock offering during the second half of 2011.
Following his Jeep plant tour, Geithner told the Detroit Economic Club that the Treasury Department is working to get both Chrysler and General Motors out from under government control. “We want to get these companies back in private hands. But we also want to gain the highest possible return for taxpayers,” he said.
Geithner described the bailout as a success, despite the initial criticism of the White House for risking billions of dollars on companies that had plunged into bankruptcy with questionable prospects for the future.
However, Geithner said the Obama administration never expected to make a profit from the rescue of GM and Chrysler. “We did this to save jobs. The biggest impact was in the jobs saved and the wealth preserved,” he said
“We’ll get everything we can to maximize the gain and minimize the loss. We are going to lose money on the auto industry but our job is to protect the country,” he said
Geithner also said the U.S financial system is now in a position where it can provide the capital required to finance an economic expansion. However, some weaknesses remain. Financing for any kind of commercial or residential construction is difficult and small banks still face significant challenges, he warned.