I woke up this morning to an email from Chrysler announcing that it's on the verge of paying off $7.5 billion in loans to the U.S. and Canadian governments. CEO Sergio Marchionne, who also runs Fiat, has been working on this deal for much of the year. And now the way is clear for Fiat to acquire a majority stake in the U.S. carmaker.
Private markets before public ones
Here's the salient language, from Chrysler's press release:
Chrysler Group intends to complete the repayment during the second quarter of 2011 from proceeds of a new term loan facility and newly issued debt securities to be offered and sold to institutional investors in a private offering exempt from registration under the U.S. Securities Act of 1933.The new bond issue is being managed by the reigning king of private markets, Goldman Sachs. Presumably, this puts Goldman in a good position to underwrite Chrysler's IPO, which was expected later this year but may get bumped to 2012.
Want some frosting on the cake? The deal is being rolled out at a Jeep plant with none other than Treasury Secretary Tim Geithner on hand.
Regardless of how you feel about the financing or the gooey co-mingling of Geither, Goldman, and Marchionne, this debt swap is a good move for Chrysler. It was paying hefty interest on remaining debt to the U.S. and Canada. The new bond terms will enable the company to move on to the next phase of its revival, which is fixing its product lineup.
How much credit does Sergio deserve?
Marchionne has earned justified praise for saving Chrysler from doom in 2009. Lately, he's also been getting credit for improving the company's vehicle offerings. Here's the New York Times:
Under Mr. Marchionne's leadership, Chrysler has methodically improved its core products since coming out of Chapter 11. In the last year, Chrysler has introduced new, well-received versions of its Jeep Grand Cherokee sport utility vehicle and the Chrysler 300 flagship sedan.Chrysler has improved its fleet over the past two years. But much of the development of these new and revamped vehicles was underway or nearing completion before Marchionne came on the scene. A real challenge for him moving forward will be to prove that he's as much a "car guy" as a financial wizard.
Keeping a lot of balls in the air
Unlike General Motors (GM) or Ford (F), Chrysler now has a lot of awkward moving parts as a business. GM's products line has been slimmed down to four brands and its expanding rapidly in China. Ford is focused on its core lineup, which is the best in the industry right now.
Chrysler, by contrast, is trying to integrate at numerous levels with Fiat, exchange old debt for new debt, and prep itself for an IPO. It also trails far behind GM and Ford in U.S. market share, at less than 10 percent. GM has around 20 and Ford holds 16. Unfortunately, the only vehicle category where it doesn't compete with its Detroit rivals is minivans.
Profits before position
It would be a tall order for Chrysler to return to a number three spot in its home market. However, in the short term, its financial house is in much better order and it's now poised to return to true profitability this year. It will also benefit from the troubles its Japanese competition is currently facing -- particularly in minivans, where it has to fight it out with Toyota (TM) and Honda.
So far, Chrysler's restoration has been admirably methodical. Marchionne has made the company hit its marks. But the money side is only part of the comeback. Chrysler also needs to build cars and trucks that consumers want to buy.