While United Auto Workers retiree healthcare trust fund and Fiat argue about the terms for an initial public offering for Chrysler, a piece from Citi this morning reminded us why the Italian carmaker is so well suited to running the company.
The question for both being, are they carmakers, or just highly specialised pension plans?
Consider this screen of European (but not UK) companies most exposed to pension risk. Read more
US auto sales climbed 7.5 per cent in October, hitting their second fastest pace of year and defying the sluggish economy, with a revived Chrysler leading the way, the Wall Street Journal reports. Chrysler, a unit of Fiat, said its sales climbed 27 per cent in the month to 114,512 cars and light trucks, with its Jeep brand having its best month in five years. Ford Motor, meanwhile. reported its new-vehicle sales rose 6.2 per cent to 167,502 light vehicles, while General Motors said it experienced slower growth, with sales rising 1.7 per cent to 186,895 vehicles. One reason auto sales are continuing to move up while the rest of the US economy struggles is that many Americans put buying new cars in 2009 and 2010 and now have older vehicles that have to be replaced. says the Journal. Inventories of Toyota and Honda vehicles, which had been in short supply during the summer, are now improving and helping sales for those manufacturers recover. Generous discounts are also being offered to lure customers back.
The Treasury has agreed to sell its remaining 6 per cent stake in Chrysler to Fiat for $560m, Reuters reports. The deal’s proceeds indicate that the government will be left with $11.2bn of its $12.5bn investment in the auto-maker under the Tarp programme in 2009. Fiat’s bid to acquire Chrysler outright is on the brink of completion following the Treasury’s sale, with the Canadian government set to offload its 1.7 per cent stake on Friday, the FT says. The agreements may allow Fiat to take full control of Chrysler without submitting it to an IPO, sources added.
Breaking pre-market news on Friday,
- EU, IMF wind-up Greek review – Bloomberg. Read more
Canada is open to selling its 1.7% stake in Chrysler directly to Italy’s Fiat, but will wait to see what price the US government gets for its shares in the automaker before deciding, Canadian finance minister Jim Flaherty said on Monday, reports Reuters. Fiat took operational control of Chrysler as part of the Detroit-based automaker’s US and Canadian-backed bankruptcy restructuring in 2009. It is in the process of exercising an option to buy the U.S. Treasury’s 6% stake and the two sides are negotiating a purchasing price. Fiat has no option to buy the Canadian shares, and Flaherty said Ottawa would consider the outcome of the US deal before deciding if it will sell its stake directly to Fiat or wait for Chrysler’s IPO, the date of which has yet to be decided.
Chrysler, the US carmaker run by Fiat, has restructured a landmark debt refinancing meant to distance itself further from its bankrupt past and pave the way for the Italian company to solidify its control, the FT reports. The refinancing includes institutional loans, which are arranged by banks and syndicated to investors, and junk bonds to replace high-interest government loans associated with its restructuring two years ago. The market for risky corporate debt has rallied for months as investors look for better returns and safeguards against rising rates. Institutional loans pay interest that floats over three-month Libor. On Tuesday, Chrysler shifted $1bn of the deal, cutting the institutional loans to $2.5bn from $3.5bn and increasing an accompanying bond sale from $2.5bn to $3.5bn, people familiar with the transaction said.
Chrysler reported first-quarter earnings of $116m, its first net profit since emerging from a government-backed restructuring two years ago under the day-to-day control of Italy’s Fiat, the FT says. The Detroit carmaker projected a profit of between $200m and $500m for 2011 as a whole. That excludes $400m in charges, net of interest savings, resulting from a pending refinancing package that will allow Chrysler to replace government loans with lower-cost bank loans and debt securities. Chrysler’s turnround means that all three Detroit carmakers – including General Motors and Ford Motor – are again profitable. The Detroit News says Chrysler’s redesigned vehicles are fetching higher prices, as the company holds the line on incentives and reduces its dependence on less-profitable fleet sales.
Fiat has come closer to taking control of Chrysler by the end of 2011 by paying $1.27bn to increase its holding to 46 per cent, Bloomberg reports. The 16 per cent stake will be acquired after Chrysler’s pays back debts to the US and Canadian governments and Fiat exercises a call option, the WSJ says. The US government gave Fiat another 5 per cent of Chrysler last week after progress on targets, including opening car dealerships in Brazil. The remaining 5 per cent needed to take Fiat’s holding to over half of Chrysler is expected to come from a target to produce a fuel-efficient car in the US.
Sergio Marchionne, chief executive of Fiat and Chrysler, has been forced on the defensive after causing a political firestorm in Italy by suggesting he could move the Italian company’s headquarters from Turin to the US and saying Chrysler’s bail-out loans from the US government carried “shyster rates,” the FT reports. AFP says that “faced with an outcry” Italy’s Labour Ministry on Saturday published a statement showing the Fiat chief backing away from his previous remarks.
Fiat has signalled it would like to raise its 20 per cent stake in Chrysler ahead of the listing of the US automotive group this year, as the Italian carmaker marked its split from its industrial arm, the FT reports. Fiat’s chief executive said that it was possible the company’s stake would be increased to over 50 per cent if Chrysler listed in 2011. Fiat bought an initial 20 per cent stake as part of the US carmaker’s bankruptcy reorganisation, and is due to get a further 15 per cent of Chrysler this year if the US carmaker meets sales and production targets. Analysts are sceptical that the stake will increase beyond more than 35 per cent, however.
Italian and Portuguese companies performed far worse than expected in the Q1 earnings season amid problems with public finances and lack of competitiveness, according to an FT analysis of Europe’s 600 largest companies. The study examined how companies met or missed analysts’ expectations for earnings per share, and showed that big misses by key Italian banks, Fiat, cement group Cimpor and Portugal Telecom dragged down the two countries’ performance.
Fiat is to demerge its non-automotive divisions from its core carmaking business in a watershed moment for the 111-year-old Italian industrial group, the FT said.
General Motors has stepped up negotiations with rival suitors to offload a stake in Opel, its European business, and could sign at least one MoU this week as talks with Magna International, the preferred bidder, have hit obstacles. RHJ International, the Belgian industrial holding company, has improved its earlier bid and China’s Beijing Automotive Industry Corp is expected to follow suit, while Italy’s Fiat expressed interest in Opel but offered no cash in its bid.
Fiat and Chrysler on Wednesday finalised a global strategic partnership that they said would start operations “immediately”. The alliance focuses on a “new Chrysler” comprising most of the bankrupt carmaker’s assets; Sergio Marchionne, Fiat’s chief executive, will become Chrysler’s new CEO. A Fiat subsidiary has taken a 20% equity interest, to be raised in increments to 35%. But Fiat will not be allowed to take a majority stake in Chrysler until all taxpayer funds are repaid.
The US Supreme Court on Tuesday allowed the sale of Chrysler to Fiat to go ahead, rejecting an appeal by three Indiana pension funds – which hold $42m of Chrysler’s $6.9bn in secured debt – to suspend the deal, reports the FT. The decision came after Fiat and the US government warned that Chrysler would go out of business by next week if the deal was delayed further. Bloomberg adds that the Fiat-led group should complete the deal on Wednesday.
Chrysler suffered a last-minute setback to its hopes of speedy restructuring on Monday after the US Supreme Court delayed the sale of the bankrupt carmaker to a group led by Italy’s Fiat. The court halted the deal “pending further order” just minutes before Chrysler’s restructuring was to close at 4pm following objections from three Indiana pension funds that hold $42m of Chrysler’s $6.9bn in secured debt. But US officials suggested the sale would proceed as planned.
A group of investors in Chrysler has made a last-ditch effort to block an alliance between the troubled carmaker and Fiat. A US appeals court on Friday approved the sale of most of Chrysler’s assets to Fiat, the US and Canadian governments and a United Auto Workers healthcare trust. However, the court put a temporary halt on the sale until 4pm Monday to allow three Indiana pension funds to file an emergency appeal to the US Supreme Court. The most probable alternative to the Fiat deal would be liquidation. The appeal however appears to have little chance of success.
A slimmed-down Chrysler is set to emerge from bankruptcy this week as the automaker’s board prepares to appoint Fiat’s chief Sergio Marchionne to the helm. US president Barack Obama praised the carmaker’s “quick, surgical” bankruptcy process. Chrysler gained court approval for the sale of most its operations roughly one month after it filed Chapter 11 and the night before General Motors’ petition on Monday. Chrysler’s speedy trip through court is key for the US government to quell fears about the implications of a bankruptcy at its larger and more complex rival.
General Motors moved closer to bankruptcy on Wednesday as bondholders failed to agree to a debt-for-equity swap and European governments sparred over the fate of its international operations ahead of the US-imposed June 1 deadline for submitting a restructuring plan. GM’s board will meet by Friday to consider strategy after the failure of the debt-exchange proposal, reports the FT. Bloomberg meanwhile says GM has asked for an extra €300m ($415m) for its Opel unit, stalling talks with Fiat and Magna over its European operations.
The German government is set to name a preferred bidder for General Motors’ cash-strapped European operations by early Thursday, paving the way for one of the country’s biggest industrial bail-outs. Chancellor Angela Merkel will on Wednesday meet officials from the US, GM and bidders for GM’s European units Opel and Vauxhall. The three bidders are Italy’s Fiat, Canada’s Magna and Belgian investor RHJ International.
Fiat has filed a revised takeover plan for Opel, the European unit of US carmaker General Motors, in which it forecast it would cut 2,000 of 25,000 jobs in Germany. The move was seen as a last-minute attempt to win over German politicians and unions, many of whom back a bid led by Magna, the Canadian car-parts group, which foresees some 2,500 job cuts in Germany. Angela Merkel, chancellor, will on Monday meet her top ministers to review bids by Fiat, Magna, and Brussels-listed RHJ International.
Three of Chrysler’s secured creditors are mounting a fresh attempt to thwart the carmaker’s Chapter 11 reorganisation, arguing it violates their legal rights and US government authority under the TARP scheme. The three – all Indiana state pension funds – are among a group of 46 creditors that recently appeared to back away from efforts to derail the process under which a “new” Chrysler would emerge from bankruptcy protection by July 1 under ownership of a union healthcare trust, the US government and Italy’s Fiat.
At least three bidders will make formal offers for a stake in General Motors’ European operations on Wednesday and will be asked to come up with about €650m ($887m). RHJ International, the Brussels-listed car parts company, emerged on Tuesday alongside Italy’s Fiat and Canada’s Magna as contenders for the troubled US carmaker’s Opel-Vauxhall divisions. All three groups are expected to submit offers by Wednesday’s deadline.
Fiat’s plan to build a European car group with Chrysler and GM’s German unit, Opel, ran into obstacles on Monday as Berlin issued a string of conditions for any Opel buyer, and dissident Chrysler creditors said a sale to Fiat would be “patently illegal”. The moves came as Sergio Marchionne, Fiat’s chief executive, met government and union officials in Berlin in the first round of his campaign to secure political backing by the end of May for a merged car group.
Chrysler will seek bankruptcy almost immediately, according to a crop of wire reports citing a senior administration official (which is Washington speak for “a press conference was held, but we aren’t allowed to name the spokesman”).
The Chapter 11 filing will happen in New York court, and the government will provide up to $3.5bn in debtor finance, and up to $4.7bn when the alliance with Fiat closes. Restructuring is expected to be complete within 30 to 60 days, the reports said. Read more
Chrysler slid on Wednesday to the brink of bankruptcy as it negotiated with debtholders and the US government ahead of Thursday’s government-set deadline for a restructuring plan. People involved in talks between Chrysler and the government said there was a chance Chrysler could avoid bankruptcy. But the Obama administration could also announce as early as Thursday that Chrysler will file for bankruptcy protection in order to restructure its remaining debt and become a viable partner for Fiat, the Italian carmaker.
The Obama administration on Tuesday extracted deep concessions from holders of Chrysler’s $6.9bn debt, buying time for the troubled carmarker. The four principal lenders, which hold about 70% of the debt, agreed in principle to swap the debt for $2bn in cash, paving the way for a heavily restructured Chrysler, part-owned by Fiat. The Italian carmaker expects to sign a partnership with Chrysler on April 30, the US government-set deadline for an alliance and a restructuring deal with the autoworkers union and creditors.
The United Automobile Workers union said Sunday it had reached an agreement with Chrysler that meets the US government’s criteria for the automaker to receive more financing, reports the NYT. The deal also brings Chrysler closer to prospects of an alliance with Italy’s Fiat ahead of Friday’s deadline. The agreement, which must be ratified by union members by Wednesday, modifies the union’s 2007 contract and reduces the amount Chrysler must pay into a health fund for retirees.
Fiat on Thursday signalled its interest in taking a stake in GM’s European business as it rushes to agree an alliance with GM’s rival, Chrysler. The Italian carmaker is among up to seven contenders for a stake in GM Europe, of which Germany’s Opel forms the largest part and which includes the UK’s Vauxhall. News of Fiat’s interest comes six days ahead of a US government-set deadline for Chrysler to present a viable business strategy or face bankruptcy.