Chrysler Wants To Refinance Loans Ahead Of IPO
DETROIT (AP) — Chrysler will try to refinance its government loans this year as it prepares for an initial public stock offering, and the reduced expense could let the company post a net profit for the first time since it left bankruptcy protection in 2009, CEO Sergio Marchionne said Monday.
Marchionne told reporters Monday at the Detroit auto show that the automaker, which lost $453 million in the first three quarters of last year, will need to post two quarterly net profits before it returns to the stock market as a publicly traded company. He has said the IPO could take place in the fourth quarter of this year, although no date has been set.
Refinancing the loans could reduce interest expenses and help the company become profitable, although Chrysler could make money without the refinancing, Marchionne said.
Chrysler owes the U.S. government $5.8 billion and the Canadian government $1.6 billion. The money is part of a $12.5 billion loan package that funded the automaker's bankruptcy in 2009. The U.S. government also got a 10 percent stock ownership in the company while Canada got 2 percent. Chrysler has already repaid nearly $4 billion of the loans, but it is paying more than $1 billion a year in interest to Canadian and U.S. taxpayers.
"The interest costs associated with this funding today are pretty high," Marchionne said. "It is possible that if the debt load would change by either changing the interest rate associated with the funding or the size of the financing would change, then obviously we would reduce the burden associated with carrying the debt and we could be profitable."
Chrysler has narrowed its losses considerably after losing $3.8 billion in the second half of 2009. In the third quarter of 2010, the company lost only $84 million. It has yet to report fourth-quarter 2010 results.
Marchionne, who also runs Italy's Fiat Group SpA, hinted that the company may post a net profit as soon as the first or second quarter of this year, but didn't make a definite prediction.
Fiat also announced Monday that it raised its stake in Chrysler by meeting a government requirement to build a new fuel-efficient engine in the United States. It got 20 percent of the company in 2009 when Fiat took control of its management. The stake rose to 25 percent on Monday, and could go up to 35 percent if Fiat meets certain government-set benchmarks. Fiat also has the option to get another 16 percent, which Marchionne said it may take this year. That would give Fiat a controlling interest in the company with 51 percent of the stock.
Marchionne has been trying to resurrect Chrysler from financial disaster after it was neglected by two previous owners. Its U.S. sales rose 17 percent last year, and it has rolled out 16 new or refurbished models in an effort to be more competitive, including a new Chrysler 300 large sedan unveiled at the Detroit show on Monday.
He said Monday that Fiat got the additional 5 percent stake for building a small four-cylinder engine at a factory in Dundee, Michigan.
Currently Fiat is the second-biggest shareholder in the company, which is almost 68 percent owned by a United Auto Workers retiree health care trust fund.
Turin, Italy-based Fiat includes Fiat Group Autos plus Maserati and Ferrari.
Marchionne also said that Fiat's industrial unit is interested in buying Volkswagen's interest in the MAN and Scania commercial truck units and is not interested in selling Alfa Romeo to Volkswagen.
Volkswagen AG has stakes in both the German MAN SE and Sweden's Scania AB.
AP Business Writers Michelle Chapman in New York and Colleen Barry in Milan, Italy, contributed to this report.