Tag Archive | "Chrysler Group LLC"

Former Auto Czar Says Chrysler, GM Far Ahead of Expectations

WASHINGTON — The Obama administration’s former auto czar says General Motors Co. and Chrysler Group LLC are far ahead of what he expected when the government restructured them in 2009.

Steve Rattner served as the administration’s top auto official for six months in 2009. A paperback version of his 2010 book, “Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry,” was released earlier this month with a new epilogue, reported The Detroit News.

“It’s a story with a happy ending,” Rattner said in a recent interview over lunch, noting he sat down with GM and Chrysler’s new CEOs this summer as he updated his account. “The progress that both companies have made since then is really quite remarkable.”

He especially praised the turnaround engineered at Chrysler by CEO Sergio Marchionne, who also runs Fiat SpA.

Last week, Chrysler posted a quarterly profit of $212 million — compared with a loss of $84 million in the third quarter last year — as its revenue jumped 19 percent to $13.1 billion.

“Chrysler is amazing. I would have never in a million years bet that Sergio could do what he’s done,” Rattner said, praising the freshening of Chrysler’s product line and holding the line on cash flow and bottom line. “They had a rough start, because we didn’t leave them with a lot.”Marchionne told Rattner that Chrysler was focused on allocating scarce capital. “Everything is vetted, flicked, scrubbed. There’s continuous analysis of the alternatives and the cheapest way to get an answer,” Marchionne said, according to the new epilogue.

The Treasury extended Chrysler a $12.5 billion bailout, and recovered $11.3 billion. By contrast, it gave GM a $49.5 billion bailout, and has recovered $23.2 billion. At current trading prices, the Treasury would lose more than $13 billion on its GM bailout.

Rattner says in the new material that after GM’s successful IPO in November 2010, he got emotional: “The cameras showed the first trade occurring on the floor of the New York Stock Exchange. I teared up and almost began crying.”

Obama’s advisers had been divided in March 2009 whether to save Chrysler, but Obama was persuaded by Rattner and others to do so — if Chrysler could tie up with Fiat. “He made all the right decisions, stood behind us and I think he deserves credit for it, and that’s what I wrote in the book,” he said. “On autos, (the White House) worked better than I ever would have imagined.”

Rattner said the auto task force told Larry Summers, who was then the head of the National Economic Council, that the government could expect to hold its GM stock “for five to eight years,” based on a study of other government interventions in the auto sector, especially in Europe.

Rattner said GM’s stock could still jump, noting he had mixed feelings about the government’s sale of nearly half of its stake at $33 a share. “The movie’s not over yet. Two years from now, the stock could be at $60 and everyone will say why did we sell any?”

He said he doesn’t believe the government’s 27 percent stake is costing GM sales, and he thinks the government should wait until the stock price rises.
On Monday, GM’s stock fell 60 cents to $25.84, down 2.3 percent.

In the epilogue, Rattner predicts that including the government $17.2 billion bailout of Detroit-based lender Ally Financial Inc., that the “current potential recovery for taxpayers” is all but $10 billion of its auto industry bailout.

“If in the end taxpayers spend $10 billion on the auto rescues, it seems a small price to pay for averting a major economic calamity,” Rattner wrote.

In retrospect, Rattner wishes that the government hadn’t given 10 percent of the equity in new GM that exited bankruptcy to the old GM bondholders. He says those claims should have been “worthless.”

He also said that the auto task force perhaps should have modified GM and Chrysler’s “overly generous pension plans.”

“In my postmortems with auto industry leaders, I was gratified to hear that they felt we had gotten nearly all of it right. Maybe we should have killed GMC, as some had suggested during the restructuring,” Rattner said.

Rattner is managing New York Mayor Michael Bloomberg’s fortune and the funds for his charitable foundation. He also writes a lot of op-eds, regularly appears on TV and makes speeches.

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Fiat Targets Chrysler Merger Within Three Years to Boost Carmaker’s Profit

Fiat SpA targets a merger with Chrysler Group LLC within the next three years as the American carmaker becomes the profit driver of its Italian parent.

“There’s no single doubt that at some point of time between now and the conclusion of the 2014 plan, we need to find a corporate convergence between Fiat and Chrysler,” Sergio Marchionne, chief executive officer of both carmakers, said on a call today with analysts. “We are totally open to what the solution is going to yield.”

Fiat must first reach an agreement with the United Auto Workers on what to do with the 41.5 percent Chrysler stake that the union’s retiree health-care trust owns and get in place the necessary financing, Marchionne said, adding that there’s no “immediate need” for a merger as there is “a lot of time.”

Marchionne, 59, aims to combine the carmakers to reduce costs and achieve a target of more than 100 billion euros ($142 billion) in revenue by 2014 as he struggles to end Fiat’s European losses, which analysts estimate at 800 million euros a year. Fiat, which owns 53.5 percent of Chrysler, expects to get to 58.5 percent by the end of the year after meeting performance targets set during Chrysler’s 2009 bailout, reported Bloomberg.

Fiat’s biggest shareholder, Exor SpA, said in a statement late yesterday that both Fiat and Fiat Industrial are proposing to convert preferred and savings shares into common stock. Exor, the Agnelli family investment company whose CEO John Elkann is also Fiat’s chairman, said it plans to keep its holdings in Fiat and Fiat Industrial above 30 percent.

“If you want to read it as a means of preparing for a potential merger with Chrysler, you read it properly,” Marchionne said on today’s call. “The way in which this happens is totally open but we need to make sure that all the instruments are in place for that to happen relatively quickly.”

Fiat’s common shares tumbled 25 cents, or 5 percent, to close at 4.85 euros in Milan trading. The stock has dropped 28 percent this year, valuing the automaker at 6.04 billion euros.

Chrysler’s rebounding sales are helping prop up Fiat. Third-quarter earnings before interest, taxes and one-time items, which Fiat calls trading profit, rose to 851 million euros from 256 million euros a year earlier, the Turin, Italy- based carmaker said in a statement late yesterday.

Fiat raised its target for 2011 trading profit to more than 2.1 billion euros on the strength of Chrysler’s earnings. Chrysler’s third-quarter trading profit contributed 65 percent of overall results. Fiat fully consolidated Chrysler’s results for the first time. The carmaker reiterated a forecast for 2011 sales to exceed 58 billion euros.

The American carmaker’s third-quarter U.S. market share gained 1.8 percentage points to 11.4 percent, the company said yesterday. Fiat’s European market share in the period sank 0.6 percentage points to 6.5 percent.

“Chrysler is driving earnings,” said Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan, who sold its Fiat shares in August and isn’t planning to buy now. “For Fiat, while trading profit is better than expected, revenues are weak as its problems in Italy are emerging.”

Net industrial debt climbed to 5.8 billion euros from 3.4 billion euros three months earlier, Fiat said yesterday. Industrial cash flow, excluding Chrysler, was a negative 1.41 billion euros.

“The real story is the cash burn,” said Erich Hauser, a Credit Suisse analyst in London. With the market anticipating net debt at Fiat’s industrial operations of 4.1 billion euros, “the poor cash flow during the third quarter highlights just how volatile Fiat’s balance sheet has become.”

Chrysler won’t consider an initial public offering until there is more clarity and stability in equity markets, Marchionne said today.

“I wouldn’t venture to do anything in this market today,” he said. “Regardless of how well we perform, I think it’s an ungrateful market. It’s distracted by a number of other things, some of which may be more relevant than our own issues.”

The maker of Fiat, Maserati and Ferrari cars posted a third-quarter net loss of 46 million euros compared with a profit of 170 million euros a year earlier. Profit was burdened by 138 million euros writedown of equity swaps related to stock options and 57 million euros in other one-time charges.

Fiat was downgraded one level by Fitch Ratings last week on concern that a combination with Chrysler will increase financial risk for the Italian carmaker. Fiat was lowered to BB, two steps below investment grade, from BB+, Fitch said. The rating company has a negative outlook on the manufacturer.

Moody’s Investors Service and Standard & Poor’s lowered their ratings on Fiat earlier this year, citing concerns that the integration with Chrysler will leave Fiat responsible for the American carmaker’s debt.

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Chrysler Swings to $212 Million Profit, Boosts Full-Year Earnings Forecast

Chrysler Group LLC, the U.S. automaker majority owned by Fiat SpA, reported third-quarter net income of $212 million and boosted its 2011 profit forecast.

The profit compares with a net loss of $84 million during the same July-to-September period last year, the Auburn Hills, Michigan-based automaker said today in a statement. The average estimate of three analysts surveyed by Bloomberg was for net income of $211 million.

Chrysler raised the forecast for its first annual profit to about $600 million from its previous projection for this year of $200 million to $500 million, excluding costs associated with paying back U.S. and Canadian government loans. A lineup of redesigned or refreshed vehicles, including the Jeep Grand Cherokee sport-utility vehicle, Chrysler 300 sedan and Dodge Journey SUV, are helping drive the automaker’s growth.

“This house continues to be fully focused on financial performance and making outstanding cars and trucks by fully leveraging its alliance with Fiat,”Sergio Marchionne, chief executive officer of both automakers, said in the statement.

The majority of Chrysler’s revenue comes from U.S. sales, which rose 26 percent during the third quarter compared with the same period last year, according to researcher Autodata Corp. Industry sales rose 5 percent during the third quarter. Chrysler’s U.S. sales increased 23 percent to 1 million this year through September, boosting market share by 1.1 percentage points to 10.6 percent, according to Autodata.

“Their share performance in the third quarter of 2011 was out of the box,” Warren Browne, vice president of business development at AutomotiveCompass LLC, said in an e-mail. “Their Achilles’ heel: Developing a much more credible position in the passenger-car business. The next generation with Fiat should help this.”

Marchionne pulled back on customer discounts by reducing incentive spending 6.4 percent to $3,434 on average per vehicle, according to Autodata. The industry average was $2,618 during the third quarter.

Consumer Reports said Oct. 25 that the three Chrysler brands it rated improved in the Yonkers, New York-based publication’s annual auto reliability survey. The Jeep brand, boosted by the new Grand Cherokee SUV, was the highest-ranked U.S. brand, finishing No. 13 out of 28.

Chrysler’s ability to sell more cars with less money spent on incentives is “a dream scenario for any automaker,” said Jesse Toprak, an industry analyst with TrueCar.com, a website that tracks automotive sales.

“Chrysler now has a better understanding of matching true consumer demand with their supply,” said Toprak, who is based in Santa Monica, California.

Third-quarter net revenue rose 19 percent to $13.1 billion. Third-quarter modified operating profit, a measure that excludes items such as taxes, interest and pension-related costs, more than doubled to $483 million, the company said.

While Chrysler’s sales are rising at a faster rate than the U.S. market, the global pace is missing Marchionne’s target for the year. Chrysler’s worldwide sales rose 21 percent to 1.38 million through the third quarter, trailing the 32 percent increase Marchionne sought for 2011.

Marchionne merged senior leadership of Chrysler and Fiat in the third quarter to create an executive council that oversees both companies. The “group executive council” of 22 managers includes the CEO, Fiat said in a July 28 statement.

Chrysler had $9.45 billion in cash on hand at the end of September, down from $10.2 billion at the end of June, according to the statement. Chrysler also revised its 2011 forecast for free cash flow to $1.2 billion from $1 billion.

The United Auto Workers yesterday ratified a new four-year labor contract with Chrysler. The agreement pays Chrysler’s 26,000 U.S. union workers a $3,500 signing bonus, half of which is contingent on meeting financial targets. The accord also raises entry-level worker pay without giving higher-paid senior workers a wage increase.

Fitch Ratings lowered Fiat’s credit rating one level on Oct. 18, citing concerns that the combination with Chrysler will increase financial risk for the Italian automaker. Fitch rates Fiat at BB, two levels below investment grade. Moody’s Investors Service and Standard & Poor’s both have a negative outlook on their ratings of the Turin, Italy-based automaker.

Fiat said today that earnings before interest, taxes and one-time items, which the company calls trading profit, rose to 851 million euros ($1.21 billion) from 256 million euros a year earlier. Profit beat the 696 million-euro average estimate of eight analysts in the quarter, the first in which Chrysler’s results were consolidated.

Marchionne has struggled so far in bringing the Fiat brand back to the U.S. after a near 30-year absence. Laura Soave, head of the Fiat brand in the U.S., said in August that Chrysler probably won’t hit its sales goal of 50,000 Fiat 500 small cars in North America. Chrysler’s rollout was hampered by a slower- than-expected opening of new Fiat stores.

Fiat rose 4.5 percent to 5.10 euros at the close of Milan trading. The shares climbed as much as 7.2 percent earlier.

Fiat is moving to raise its ownership stake in Chrysler to 58.5 percent this year after paying back U.S. and Canadian loans and buying out the taxpayers’ shares.

Without spending any cash, Fiat gained 20 percent ownership of Chrysler through the U.S. automaker’s 2009 bankruptcy reorganization. By exercising purchase options at a cost of $1.97 billion and meeting certain performance milestones, Fiat has obtained 53.5 percent of Chrysler on a fully diluted basis.

Marchionne has said he expects to meet the third and final milestone, tied to Chrysler assembling a 40 mpg vehicle in the U.S., by the end of the year, granting it an additional 5 percent stake.

The Detroit-based UAW’s retiree health-care trust is Chrysler’s other owner.

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UAW Says Chrysler Workers Approved Contract

Chrysler Group LLC workers approved a new four-year labor contract with the auto maker, the United Auto Workers union said on Wednesday.

The agreement passed with 54.8 percent of all those who voted favoring the deal, the UAW said. Ratification required the endorsement by simple majority of those voting, reported The Wall Street Journal. Skilled trade workers, a subset of union members, rejected the contract with 55.6 percent voting against the deal, the UAW said.

The rejection by skilled trade workers sent the UAW leadership scrambling Tuesday night and Wednesday. In the end, the UAW said it investigated the concerns voiced by the skilled trade and decided to ratify the agreement based on its constitution, which requires a simple majority of those voting for approval.

“You want to protect the rights of the minority but you can’t let the minority override the majority,” UAW President Bob King said in a conference call following the ratification. He said skilled workers could appeal the vote through the Public Review Board, an independent group established by the UAW.

The last-minute split vote was the final piece of drama in the Chrysler and UAW talks, which included two deadline extensions and an angry letter from Chief Executive Sergio Marchionne to Mr. King after the two failed to reach an agreement before the contract was due to expire Sept. 14.

Dissatisfaction with the contract, especially a signing bonus that is to be paid in two parts, was apparent throughout the week-long voting process with some union locals voting against the contract. Other members protested by not voting at all.

“The money was a big issue,”Mr. King said. “The Chrysler workers saw their brothers and sisters at Ford Motor Co. and General Motors Co. getting a lot more money and in one lump sum,” he said. “I think that made a dramatic difference.”

Chrysler’s agreement provides a signing bonus of $3,000 with $1,750 to be paid once the contract is ratified and the remaining amount due after Chrysler returns to financial stability. There is also a bump in the hourly wage for entry-level employees. Chrysler, meanwhile, won’t increase pay for veteran workers or offer a cost-of-living adjustment.

GM workers received a lump sum $5,000 bonus following ratification while Ford workers received $6,000.

Chrysler was the last of the U.S. auto makers to settle its labor contracts. GM and Ford contracts received majority approvals despite some UAW locals turning down the accords.

The auto makers are now expected to begin advancing projects they had held back pending contract ratifications. They include expanding capacity, reactivating plants or moving assigning future vehicle production to different U.S. facilities.

Ford is planning to add some of its Ford Fusion production to its Flat Rock, Mich., plant, while Chrysler intends to add new vehicles to the Sterling Heights, Mich., factory and General Motors will reopen its former Saturn plant in Spring Hill, Tenn.

Separately, Mr. King said a grievance filed by the UAW against Ford is set to go to an arbitration hearing on Nov. 17.

The grievance claims the auto maker violated an agreement to treat both the salaried and union workers equally after Ford gave its salaried employees raises and reinstated 401(k) matches before union workers last year.

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Fitch Lowers Fiat Credit Rating on Chrysler Risk

Milan, Italy – The Fitch ratings agency has downgraded the credit rating of Italian automaker Fiat SpA because of risks linked to its combination with U.S. automaker Chrysler Group LLC.

Fitch said Tuesday that Fiat’s own operations may be disrupted by financial difficulties at Chrysler at a time when Fiat is under pressure at its standalone business, reported The Detroit News.

Fitch says the downgrade to BB from BB+ reflects Fiat’s “intrinsic weakness” in that it relies heavily on the Italian and Brazilian markets and only has a small presence in the growing markets in China, India and Russia.

In September, Moody’s downgraded Fiat’s ratings as well for similar reasons.

Fiat holds a 53.5 percent share in Chrysler, and expects to raise its stake to 58.3 percent by the end of the year.

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Chrysler’s Makeover Aids Fiat

Sergio Marchionne had what he called a “once in a lifetime” moment in 2009 when President Barack Obama selected Fiat SpA to save Chrysler Group LLC. The head of both automakers may be having flashbacks as the tables turn.

The previously bankrupt U.S. company, which became majority owned by Fiat this year, is now shoring up its Turin, Italy-based parent, as the European debt crisis depresses sales, according to The Detroit News. Chrysler is due to outpace Fiat’s operating profit by 87 percent in the second half, and the gap will likely continue in 2012, says a Bloomberg News survey of analysts.

“Fiat would be very vulnerable now without Chrysler, with few industrial and financial options on its hands,” said Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan, who sold Fiat shares in August.

While Chrysler’s revitalization offers Fiat a cushion for Italy’s downturn, Marchionne’s turnaround of the Auburn Hills company has deepened its woes in Europe. With the U.S. unit hogging development and management resources, Fiat has been left with aging models and eroding market share, putting Italy’s largest manufacturer at the mercy of volatile Chrysler earnings.

“Long-term, neither Fiat nor Chrysler would have made it on their own,” Marchionne said this month. “Fiat was too small and too handicapped by an inadequate business model in Europe to have any hope of a future.”

Chrysler may post earnings before interest, taxes and one- time items, of 864 million euros ($1.18 billion) in the second half of 2011, compared with 462 million euros from Fiat’s traditional operations, according to the average estimates of six analysts. Trading profit for the U.S. automaker, which was consolidated into Fiat results from June, may reach 1.91 billion euros next year, 77 percent more than Fiat’s 1.08 billion euros.

The turnaround at Chrysler hasn’t helped Marchionne win over investors to his plan to create a global auto group to rival Volkswagen AG. The shares have fallen 40 percent in the last three months, the second-worst performer in the Bloomberg European autos index after France’s PSA Peugeot Citroen.

“If Fiat is depending upon Chrysler, that’s a bad bet because Chrysler is still a question mark,” said Gerald Meyers, a business professor at the University of Michigan. “It will be two to three years before we know whether Chrysler is going to even be successful, much less sustainable.”

Chrysler, under three different owners in four years, recorded net losses totaling $34 billion from 2006 through 2010, according to the automaker’s filings with the U.S. Securities and Exchange Commission.

Moody’s downgraded Fiat to two notches below investment grade last month on concern about the financial stability of the combination with Chrysler. The rating company also cited infrequent model renewals in Europe and increasing competition in Brazil, where Fiat is profitable.

Marchionne, who acknowledged in an April interview that he neglected European operations in favor of a U.S. turnaround, postponed the launch of new Fiat models when the 2008 financial crisis hit the car market and is doing the same again.

Aside from a rebadged version of the Dodge Journey, the overhauled Panda subcompact, which was unveiled last month, was the first all-new model for the Fiat brand since the retro- styled 500 in 2007. In the U.S., 75 percent of Chrysler’s lineup has been updated since the executive took control in June 2009.

That product strategy has resulted in Fiat’s European market share shrinking to 7.3 percent through August from 8.2 percent a year earlier as deliveries tumbled 13 percent, according to the European Automobile Manufacturers’ Association.

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