Chrysler Prepares IPO Under Pressure From Retirees
Sales of Ram pickup truck and Grand Cherokee driving profits
The automaker is proceeding with the IPO after it failed to reach an agreement on the value of the stock with the retiree trust that owns it. Chrysler and Fiat CEO Sergio Marchionne was keen to have Fiat take full control of Chrysler, but had been at an impasse with the UAW's Voluntary Employee Benefits Association (VEBA), which wants more for its stake than the $2.5 billion Marchionne has been offering. The trust has set the value of the stake at $4.27 billion, while Fiat says it's worth $1.75 billion. Marchionne wanted to control Chrysler without the VEBA in the picture in part to gain full access to the company's liquidity and combine the operations of the U.S. automaker and his financially ailing Fiat.
At the trust's request, Chrysler filed the IPO paperwork with the U.S. Securities and Exchange Commission late Monday. But Chrysler emphasized that the shares may never be publicly sold. The two sides could still reach an agreement on the price of the shares without an IPO.
The VEBA, which owns 41.5% of Chrysler, got its stake when Chrysler went through bankruptcy in 2009. The equity stake was granted in exchange for billions owed to it by the old Chrysler. If the VEBA trustees wait for the IPO, they'll be betting that with auto sales climbing and Marchionne doing such a good job of managing the company, the market will value Chrysler at more than Marchionne believes and it can sell its shares at a higher price.
The VEBA wants to maximize its return on investment because, despite Obamacare, there is little evidence that the rising costs of healthcare are slowing down for the retirees that the trust serves.
"There can be no assurance that any such offering will be made or as to the timing of any offering that is made," the company said in a statement emailed to The Associated Press.
Richard Hilgert, a Morningstar analyst who watches Fiat and Chrysler, said it's unlikely that the IPO will ever take place because it's not in the best interest of either the trust or Fiat.
"This is just the negotiating dance that they have to go through to come to an agreement," he said.
Why does the VEBA think it can do better in the open market? The Chrysler Group, pumped up by the strong demand for its Jeep vehicles and Ram pickup truck, reported healthy second quarter earnings.
Chrysler reported net-income of $507-million for the second quarter, up 16-percent from the same period a year earlier.
Will there be demand for Chrysler stock when it finally hits the market? Yes. The market value of the country's automakers has soared in recent months. Shares of General Motors and Ford are up 53- percent and 68-percent, respectively, over the last year. Demand is way up for new vehicles and Chrysler has a good cadence of new models coming out in the next 24-months, starting with an all-new Jeep Cherokee hitting showrooms before the end of the year.
Chrysler's U.S. sales in the quarter were 479,980, up 10-percent over the same period a year ago. The increase outpaced the industry's average rise of 8 percent. "I think the (U.S.) market is holding up well and Chrysler is holding up well in that market," Marchionne said.
AOL Autos staff contributed to this report.
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