How times change. Not so long ago, the giants of Detroit were in crisis. Since the dark days of 2009, they have enjoyed a gradual resurgence. In 2013, a US light vehicle market heading towards 16m units is giving all three slimmed down makers a big lift. Ford and General Motors still have their problems in Europe, but their footprints and profits elsewhere are big enough to keep things manageable.
Chrysler is an interesting one because of the current argument over the value of the UAW healthcare trust’s remaining stake (41.5%) and the possibility of an IPO having been triggered by the healthcare trust. Fiat and Chrysler CEO Sergio Marchionne wants Fiat to own all of Chrysler, but he wants a price for those remaining shares that is some way from what the healthcare trust would like. It looks like a game of poker.
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Sergio Marchionne, everyone knows, is a big believer in the primacy of scale in the automotive business; he believes the big groups will ultimately be left standing as automotive companies come under growing pressures on already thin margins; the pressures are both market-based and regulatory and they are relentless. The Fiat-Chrysler alliance is essential to his view of how both small makers with their structural weaknesses can survive.
Fiat Auto Chairman John Elkann has suggested that an IPO would alter the two companies’ relationship. The clear implication is that an alliance that has already produced significant benefits for both would be called into question.
Meanwhile, the continued strong financial performance of Chrysler – it has just posted its ninth consecutive quarterly profit and is making a big contribution to Fiat’s fragile bottom line – makes the potential value of Chrysler shares on the market even higher, strengthening the UAW hand.
So, last week, Mr Marchionne casually suggested that the IPO will go ahead before the end of the year, but it is a complication that his past comments suggest he would much rather avoid. Some are suggesting that his latest remarks need to be seen as a negotiating tactic. Keep an eye on this story over the next few weeks. The game of poker may yet see a few more twists.
