The Chrysler IPO Is a Win-Win for Investors

Chrysler LLC has filed for an initial public offering (IPO ), returning to publicly traded status after 15 years in the wilderness of global business uncertainty - and the Chrysler IPO comes at a great time for the company and for the whole American auto industry. You see, not even five years ago, the Big Three were teetering on the edge of destruction and irrelevance, with dismal sales and empty coffers, running losses in the hundreds of millions on products that nobody wanted. The global financial crisis was the last nail in a coffin more than 10 years in the crafting.

Chrysler LLC has filed for an initial public offering (IPO), returning to publicly traded status after 15 years in the wilderness of global business uncertainty - and the Chrysler IPO comes at a great time for the company and for the whole American auto industry.

You see, not even five years ago, the Big Three were teetering on the edge of destruction and irrelevance, with dismal sales and empty coffers, running losses in the hundreds of millions on products that nobody wanted. The global financial crisis was the last nail in a coffin more than 10 years in the crafting.

Chrysler and General Motors Co. (NYSE: GM) took bailouts totaling about $25 million. Ford Motor Co. (NYSE: F), who famously "refused the bailout," took advantage of a $9 billion "line of credit" it begged from the government - a bailout in all but name.

But a funny thing happened after the bailouts. The automakers actually managed to turn things around - and they did so in spectacular, convincing fashion.

Chrysler IPO 2013

Starting in 2010, less than two years after the worst of the crisis, General Motors declared that it would have a profit on its hands - the first since 2004. It announced that it was buying back $2.1 billion in stock from the government, beginning to pay back the bailout.

The same year, Chrysler reported its smallest loss since merging with Italian automaker Fiat S.p.A (ADR) (FIATY) and exiting bankruptcy.

In 2011, Chrysler posted a 16.7% increase in sales over 2010. Ford posted a 24.3% gain, and GM posted 12.2%. American auto marques routinely began to top lists of best-selling models. 2012 saw more of the same, with double-digit gains amidst an anemic overall economic recovery.

Healthy share prices for auto stocks draw a fat line under that assertion. Ford Motor Company stock is up more than 34% for the year, while General Motors' shares are up more than 31% over the same time frame.

2013 has been a good year for Chrysler, as second-quarter profits climbed 16%.

The Chrysler IPO Saga

In an industry marked by dramatic turnarounds, the Chrysler IPO fits right in...

Fiat, which owns 58.5% of Chrysler, last week approached the United Auto Workers' Voluntary Employees Benefit Association (VEBA), the UAW healthcare trust that owns 41.5% of the company, and demanded full control of Chrysler.

Fiat offered to buy the remaining shares, which VEBA can cash in to cover financial responsibilities toward Chrysler's 11,500 employees. VEBA demanded something like (according to rumors) $5 billion for them. This was widely seen as a ploy to begin haggling between Fiat and the VEBA, which expected a counteroffer, but Fiat balked entirely. Deal off!

Now, the VEBA is pressuring Chrysler management to make an IPO of around 16% of the available shares. Estimates put the Chrysler IPO, underwritten by JPMorgan Chase & Co. (NYSE: JPM), at around $100 million.

Fiat is sulking. Chief Executive Officer (CEO) Sergio Marchionne wanted to stage an IPO as well, but on his own terms. The company has threatened to "rethink" its partnership with Chrysler.

Fiat has a lot to offer the company, too. Marchionne had quite a lot to do with Chrysler's remarkable turnaround. He orchestrated a corporate alliance to benefit Chrysler, with Fiat sharing in technology, infrastructure investment, engineering, and new vehicle platforms.

A Win-Win Poker Game for Investors

But Chrysler is now worth around $10 billion, with net profits of around $760 million. These numbers suggest that the balance of power in the Chrysler/Fiat axis may have shifted back to Chrysler. It certainly appears that Chrysler has the wherewithal to get up and walk away from Fiat and remain profitable.

Marchionne just might be playing a busted flush against the VEBA's two pair, with a real suck out in the offing.

There is a chance that Fiat and the VEBA will work out a deal, enabling Fiat to pick up the VEBA's shares for less than $5 billion. The sweetheart number is thought to be between $3 and $3.5 billion. In the event that Fiat and the VEBA strike an agreement, the IPO will be canceled - for the time being.

If Marchionne draws the Ace of Hearts he needs, he walks away with the VEBA's shares. In that case, there will still be a Chrysler IPO, only it will happen at a later date, on Fiat's terms, and for significantly more than $100 million.

But if Marchionne gets busted out, we'll still have a Chrysler IPO - and a nice opportunity to get in on the ground floor of the Cinderella Story of the decade.

At Long Last... Detroit "Gets It"

Even if the Chrysler IPO doesn't work out, what we're seeing is a good time to be investing in auto stocks.

American automakers haven't been seen as good investments for the past 40 years or more. Indeed, for most of that time, they've been positively radioactive. Management was either completely ossified or had breakneck turnover, and nearly all were (rightly) seen as slow to adapt to change and maddeningly unable to deliver the right product for the right market at the right time.

But that is changing.

In 2011, and for the first time in its 24-year history, a J.D. Power & Associates quality survey gave American auto makers higher quality scores than most European and Japanese manufacturers. The Americans are taking in the double-digit gains from record sales and investing the balance in research and design.

A new generation of CEOs has arrived, forged in the fires of truly global business, and most have a near-instinctive ability to feel out the markets and deliver cars that people want to drive now. The lessons of fuel economy have finally sunk in, making Ford able to compete with Honda.

The markets have rewarded Chrysler and other American manufacturers accordingly, opening up in ways unthinkable just 10 years ago. The Americans aren't just playing in their own backyard anymore.

American car makers are making huge inroads into the great, untapped auto market of China. China's auto sales are going to grow by 7% to 10% per year for the foreseeable future. As anti-Japanese sentiment rumbles throughout China, Ford and GM are picking up the slack. Chrysler is set to re-start Jeep production in the country by the first quarter of 2014.

The Chrysler IPO, when it does happen, will cement the resurgence of American car manufacturers and make for a highlight in a good year for IPOs. At long last, investors can feel good about getting behind the wheel of this amazing recovery.

What do you think of the #BigThree's turnaround and the Chrysler IPO? Let us know on Twitter, or drop us a line on Facebook.

Not all IPOs are created equal. For every investor who's made a mint on the newest offering, there's another who's been burned. Here's our guide to the best and worst IPOs of 2013. Anyone thinking of IPO investing must read this.

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