2010 GM And Chrysler IPOs Looking More Likely
Chrysler crowed over its 9.1 percent market share in its Q1 results conference call yesterday, and though CEO Sergio Marchionne refused to be pinned down on an exact time frame, an IPO this year looks more likely than ever. Similarly, BusinessWeek reports that GM’s Ed Whitacre has hinted that a Q1 profit is likely, as is an IPO in Q4 of this year or early next year. This improvement in both bailed-out automakers was underlined by former Presidential Auto Task Force head Steve Rattner, who said the two firms were “meeting expectations,” at a Detroit-area conference. But Rattner also put his expectations into some context by saying
When we did this restructuring we never expected a full recovery of our investment. If it ends up costing us $10 billion we should consider it a success. For about $10 billion we avoided economic and human calamities… I would suggest that that’s a pretty effective cost of government stimulus
That assessment is down considerably from Rattner’s last prediction, which expected a taxpayer profit on the auto bailout.
We’re not putting a firm line in the sand; we’re hopeful they’ll be able to do it by the fourth quarter
Where exactly GM stands financially won’t be clear until Q1 results emerge later this month, but Chrysler’s performance was surprisingly strong given the challenges it is facing. Despite a reported 40 percent fleet sales mix in April, Chrysler’s Q1 results showed a $27,800 average transaction price, up considerably from Q1 2009’s $25,400 level. That growth is clearly tied to improved incentive discipline, with about $3,500 average incentive cost compared to $5,000 in Q1 2009. Average transaction prices were down from Q4 2009 levels however, when they reached $28,100.
Marchionne claimed that its guidance of $40b-$45b net revenue for 2010 and $0-$200m operating profit were “conservative,” saying that he expected the company to “blow the lid off” its current projections. The firm will re-visit guidance at the end of Q3. However, at $9.68b net revenue in Q1, revenues do seem to be a bit shy of where Marchionne wants them to be. Given both the fleet mix and reductions in much-ballyhooed Ram truck sales Chrysler saw in April, there’s certainly a chance that Q2 results are already behind the curve to meet those goals. Marchionne did say that fleet sales would continue to be an important part of Chrysler sales, saying its mix (at the end of Q1) was in line with its Detroit competitors.
Marchionne did say though that Chrysler was focused on an IPO, saying that it needed to be ready for a “plug-and-go” floating of Chrysler equity. To make that happen though, Chrysler needs to stick religiously to its numbers. Moving towards a late-2010 IPO will likely require an improvement in the revised guidance at the end of Q3, and an improved outlook for 2011. And with $2.3b of debt maturing in 2011, securing that improved outlook won’t necessarily be easy. But with most of Chrysler’s new products dropping all in the fourth quarter of this year, it looks like Marchionne is envisioning a blitzkrieg attack starting in October. By flooding the market with new and revised products, Marchionne will begin Chrysler’s move towards a public offering with a distinct break from its current PR radio silence.
In the meantime, Chrysler will keep its spending relatively low and will probably maintain a low profile. If it stays quiet and hits its numbers for three more quarters, there’s a chance that a late-2010 IPO is more than an impossible dream. But building up the confidence to launch an IPO is no guarantee of a successful IPO. Chrysler is clearly working with a cleaner balance sheet than ever before, but there’s still a lot of work to be done.
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