Chrysler confident in company’s future
DETROIT – After touring a Detroit auto plant with U.S. Treasury Secretary Timothy Geithner, Fiat and Chrysler CEO Sergio Marchionne said Thursday he is confident that institutional investors and banks will be interested in refinancing Chrysler’s government loans.
Marchionne said the company’s finances and the market are both strong enough for Chrysler Group LLC to obtain new financing before the end of June, allowing the company to pay off its $7.5 billion in government loans.
“The markets are there now, and our performance is consistent with the objectives we set for ourselves,” Marchionne said Thursday. “So I think it’s time to close the loop for what has been an incredibly necessary intervention.”
Refinancing and paying off government loans would be a major step forward for a company that nearly collapsed without being rescued by the U.S. and Canadian governments, which invested more than $12 billion in loans and equity.
Now, Chrysler plans to sell new debt to institutional investors, obtain a new loan from a group of banks and use a $1.27 billion investment from Fiat SpA to repay its government loans. Chrysler still owes $5.8 billion to the U.S. Treasury and $1.7 billion to Canada.
“I would not have made the announcement if Chrysler was not … quite attractive to the capital markets,” Marchionne said Thursday.
Marchionne said Chrysler is in discussions with several banks but declined to identify them by name. The Detroit Free Press has previously reported that Chrysler is talking to Goldman Sachs, Morgan Stanley, Bank of America and Citigroup about a deal in which they would underwrite bonds and loans.
Marchionne toured the company’s Jefferson North Assembly Plant in Detroit Thursday with Geithner, UAW President Bob King, U.S. Reps. John Dingell and Hansen Clarke, plant manager Pat Walsh and UAW Local 7 President Cynthia Holland.
Geithner, who played a key role in guiding the Obama administration’s auto task force, posed for photos but did not take questions at the plant where Chrysler makes the Jeep Grand Cherokee and the Dodge Durango. He was scheduled to speak later Thursday to the Detroit Economic Club.
Marchionne stressed Chrysler’s progress, the quality of the company’s cars and trucks and the fact that it exports the Jeep Grand Cherokee to 120 countries during his time with Geithner.
Fiat, which owns 30 percent of Chrysler, plans to increase its ownership to 46 percent after it completes the refinancing.
When Fiat owns 46 percent of Chrysler, the U.S. government’s stake will shrink from 9.2 percent to 6.6 percent, Canada’s will drop from 2.3 percent to 1.7 percent, and the UAW’s Retiree Medical Trust will own 45.7 percent.
Marchionne wants to raise Fiat’s stake in Chrysler to 51 percent before issuing public shares of stock. Under its 2009 agreement with Treasury and Canada, Fiat can acquire an additional 5 percent share of Chrysler after it starts building a car in the U.S. that gets 40 miles per gallon on the highway. Marchionne said he expects Chrysler will be able to reach that milestone before the end of this year.
He declined to say when Chrysler would issue the public stock offering.
Chrysler has been working to refinance the government loans for months because they cost the company $1.2 billion in interest last year.
Credit Suisse auto analyst Erich Hauser estimates that Chrysler could save about $270 million annually after it completes the refinancing.
Hauser also said Chrysler’s timing is good, even though the automaker hasn’t reported a profitable quarter since it has emerged from bankruptcy.
“They are trying to use what I think is a beneficial market while it is still there,” Hauser said. “They are clearly trying to get the deal done as soon as they can.”
But even after Chrysler completes the refinancing of its government loans, it is still important for the company to obtain a loan from the U.S. Department of Energy under a program designed to help automakers fund investments in fuel efficient technology, Marchionne said Thursday.
“It needs to get done to make us competitive,” Marchionne said.
Ford, Nissan, Tesla and Fisker have received loans through the Department of Energy program, but Chrysler’s application for more than $6 billion is still pending.
Chrysler has made significant progress since 2009 when it was forced to file for Chapter 11 bankruptcy. While the company still hasn’t reported a quarterly profit it has been able to cut costs, reduce its losses and introduce 16 new or refreshed cars and trucks.
Chrysler reported a $652 million net loss in 2010, but it expects to be profitable this year. From January through March, Chrysler’s U.S. sales increased 22.5 percent, slightly more than the industry’s 20.5 percent.
The company is to report its first-quarter financial results on Monday.