After repeatedly delaying plans for a public stock offering and then suggesting Fiat might sever its ties with Chrysler if it went ahead with an IPO, the CEO of the two automakers now says he’s ready to put the process into overdrive.
“That horse left the barn,” Chief Executive Officer Sergio Marchionne told reporters and analysts during a news conference called to discuss the maker’s third-quarter earnings. “We are now bent on executing the IPO. I hope that we can get it done by the end of this year.”
Fiat initially acquired a 20% stake in the U.S. maker following Chrysler’s emergence from bankruptcy in mid-2009. Through a series of steps it has increased its holdings to 58.5%, and Marchionne has repeatedly expressed Fiat’s interest in acquiring the remaining 41.5% held by a union retiree health care trust. But the two sides are battling over the worth of the United Auto Workers Union’s holdings in a Delaware court and the union is now pressing to let the market set the price with an IPO.
Marchionne has clearly been hoping for an alternative but appears to be left with few options. Industry analysts and financial agencies have warned that Fiat’s own debt rating could be at risk if it proceeded to buy Chrysler out on its own at the union’s asking price.
Marchionne spoke about IPO and a variety of other topics during a conference call following the release of Chrysler’s third-quarter earnings. The maker turned in $464 million in net income for the July to September period, a 22% year-over-year increase. But he acknowledged the maker could have done significantly better had it not had to delay the launch of the new Jeep Cherokee crossover-utility vehicle that is only now rolling into dealer showrooms.
(For the full story on Chrysler’s Q3 earnings, Click Here.)
The good news, Marchionne stressed, is that the problems with the new Cherokee’s 9-speed automatic transmission has been resolved and with production rapidly reaching full speed, it should boost the maker’s cash balance and earnings during the final quarter of the year.
“The industrial machine is pumping on all cylinders,” said the CEO, predicting that from a working capital standpoint, the fourth quarter should be “phenomenal.”
(GM earnings slide 22% for the quarter. Click Here for more.)
Marchionne acknowledged Chrysler had made a major mistake by ending production of the old Jeep Liberty model in mid-2012 only to wait more than a year to start selling its replacement, the Cherokee.
“I guarantee we’ve learned a lot. We’ll never take a plant down and be out of the market for over a year,” he acknowledged, adding that Chrysler “should have found a more intelligent way” to handle the model changeover. “We’ve learned painfully (that) we’ve been out of the market way too long.”
Marchionne had to preside over two earnings announcements on Wednesday, with the Fiat SpA side of the alliance also reporting in – but with significantly weaker numbers. The Italian maker saw its third-quarter net rise by 11%, to 189 million euros. But stripping out the financial gains it reported from its stake in Chrysler, Fiat would have gone 247 million euros into the red, a 37 million euro worsening from year-ago numbers.
(Chrysler among brands expected to do well as October sales rebound from last month’s slide. Click Here for the story.)
A major part of the problem is that the Italian maker remains heavily dependent on the struggling European automotive market, albeit less so than Chrysler remains focused on North America. Barely one in seven of the cars sold by the Detroit maker went to markets abroad during the July – September period.
Leveraging their individual strengths, a key element of Marchionne’s plan is to transform the Fiat-Chrysler alliance into a truly global force. Getting into China with the Jeep brand is “an integral part of the strategy going forward,” the executive said. But while he confirmed negotiations aimed at setting up a Chinese production base are heating up, Marchionne cautioned that, “I cannot tell you when I think that issue will be resolved.”