By on May 11, 2010

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.

Current auto task force boss Ron Bloom echoed the IPO optimism, as the AP reports that Bloom is “hopeful” that GM will be able to swing an IPO by year’s end. However, as the Detroit Free Press reports, Bloom refused to make a concrete prediction, saying

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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9 Comments on “2010 GM And Chrysler IPOs Looking More Likely...”

  • avatar

    Hmmm… so now instead of “getting out of the automotive business with a profit,” the feds are more interested in simply “getting out?”

    Makes me wonder if we won’t be looking at new ownership for Government Motors before the year is done, and I don’t mean shareholders. Perhaps Whitless and/or the feds realized GM can’t be truly successful with buyers running from the “Government Motors” stigma in droves, and perhaps the only bright light they see is in the form of hurriedly dumping the company off on a private entity.

  • avatar

    I’m sorry but the idea that there are investors (intelligent people with their own money) that will buy Chrysler stock is preposterous.

    Marchionne is an example of BS over substance. And his BS is designed to pacify the taxpayers who were sucked into this debacle in the first place. He only answers questions that he can spin his way. He has no answers for all his outrageous predictions (like 100% sales increases) and automotive reporters (present company excepted, Ed) can’t wait to write down whatever he says, no matter how ridiculous. An IPO for Chrysler, please. Invest in a company 1 year out of bankruptcy, with few new products, a reputation as the worst car company of the group and a future tied to Fiat, who hasn’t sold a car in North America in 30 years. Not even Marchionne’s BS can pull that one off.

    And if I hear one more time that they had a $143 million “operating” profit, I think I’ll buy another Chrysler T&C and commit slow suicide by inferior quality and lousy workmanship. Chrysler lost $200 million+ in the first quarter. And they will lose money for 2010. That’s all lenders, investors and banks care about. And there won’t be an IPO until Chrysler can turn a profit and leave out the word “operating”.

    • 0 avatar

      Yeah, Marchionne is so full of BS that he managed to save Fiat from a guaranteed Chapter 7 in 2004. Yeah, the guy definitely doesn’t know what he’s doing. :rolleyes:

      Replace “Marchionne” with “Whitacre” and “Chrysler” with “GM” and your post will be much more accurate.

    • 0 avatar

      +1. I would believe Sergio before I would ever believe anything Whitacre says.

  • avatar
    Tommy Boy

    Wanna bet that the Obama administration is leaning on both to IPO and out the government before November 2012 so that Obama can put this behind him and not have to defend it and/or declare victory (no matter the ultimate loss to the taxpayers)?

    Also, who in their right mind would buy stock in a unionized company after Obama stiffed the bondholders at GM / Chrysler so that he could give money that they were entitled to to the UAW instead?

    Maybe the stock would be OK for a short term trading opportunity, but only an idiot would invest in the long term in a company with a union on the premises … particularly one with a history (and present) like the UAW … and particularly while Obama remains in office!

  • avatar

    Both the IPOs will probably go fine at first. The government won’t get its money back, not even close and neither will the UAW. But never underestimate how many idiots with money there are. Just last week I had to talk a friend out of buying the old GM stock. When the new stock starts trading there will be lots of suckers lining up to buy. It’s just a government sanctioned pump and dump scheme that has landed lots of brokers in prison over the years. What you want to bet that Goldman Sachs underwrites both offerings?

  • avatar

    Obama can simply order pension funds to buy GM shares. It’s not like he never abused his presidential power before.

    Do the right thing. Short GM 6 month after IPO.

  • avatar

    It’s interesting to see how these bailed out car companies which were able to dump a large portion of their obligations/debt in bankruptcy court are twisting themselves into a pretzel like a mob accountant inorder to make it appear that they are a) making a profit and b) paying back their government loans. Then you have Ford who is actually making a profit and paying down its (admittedly mountainous) debt.

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