Marchionne Discusses Possibility of Chrysler IPO; New VP of External Affairs Named
AUBURN HLLS, Mich. — An initial public offering evidently is on the radar of top Chrysler executives. Chief executive officer Sergio Marchionne described the company as having a "strengthening base" for one, but stopped short of giving a specific date when a capital-raising event might occur.
During a conference call earlier this week, Marchionne was asked about a company IPO, especially in light of Chrysler reporting an operating profit in the first quarter of 2010.
"One of the things that has happened here is we have been incredibly quiet intentionally on what has been going on at Chrysler," Marchionne stated. "The profit of $143 million did come as a pretty significant surprise.
"So the fact that we have gotten this far would suggest that probably there's a strengthening base for us looking at an IPO in a shortened time frame than most people would have expected," he continued.
The automaker's CEO went on to emphasize that Chrysler's board is going to examine an IPO "very, very closely over the remainder of 2010."
Meanwhile, the automaker already made its choice for senior vice president of external affairs. The company on Tuesday picked Joseph "Jody" Trapasso, a former senior adviser to the chairman of the Democratic National Committee as well as counsel at the White House during the Clinton Administration.
"Jody is a strong addition to the leadership team at Chrysler," Marchionne noted
"He brings significant experience from both the public and private sector to today's dynamic and intense regulatory and public policy environment," Marchionne added.
More Discussion about Potential IPO
As much traction as Marchionne said he believes Chrysler has made, some industry observers are urging caution.
One of those is James Bell, executive market analyst for Kelley Blue Book's Kbb.com, who discussed and compared some of the positive news emerging out of Toyota and Chrysler, "two of the most embattled companies of 2009 and thus far in 2010."
After offering his perspective about the success of Toyota's incentive program that appears to have been "worthwhile" and gained a few atypical buyers, Bell had a slightly different take on Chrysler's situation, but still offered somewhat of a silver lining for the automaker.
He noted "On the other side of the spectrum is Chrysler, which has fewer loyalists and less consideration (than Toyota) among bargain hunters to couple with its recently announced incentives.
"In addition, the company also is several months away from any substantial or high-volume new product thanks to its new relationship with Fiat," he continued. "But out of this darkness we hear news that Chrysler is aiming for profits sooner than anticipated and the all-important IPO.
"Our only concern is that this optimism is sourced from cuts and reductions as well as unprofitable fleet volume, which can impact brand equity and resale value down the road," Bell went on to explain. "Short-term satisfaction seldom leads to long-term health."
Marchionne insisted there are several factors that he and the rest of the OEM's brain trust will pore over before making a decision.
"How that's going to pan out really depends on a couple of things," Marchionne noted.
"One is the rate at which we could improve Q1 performance to set the basis for a decent forecast for 2011. And secondly are the conditions of the market. Certainly the latest scare that we've seen in terms of the Greek emergency and the response from the finance ministers has put that issue behind us," he explained.
"The board is very keenly interested in this. I'm not speaking on their behalf. That's going to be a decision that's made by the board. It's an issue that's in front of the board every time we get together," Marchionne continued.
"We'll do it at the right time," he emphasized. "Timing is really subject to these two things: the continued improvement in performance and the ability of capital markets to support it. We'll do it as quickly as we can."
To get into proper position, Marchionne pointed out that Richard Palmer, senior vice president and chief financial officer, and Chrysler's team of executives are preparing diligently.
"We have been working hard on this because we need to be able to push the button and go. The house is getting ready now. Hopefully within 2010, we'll be in position to comply with all of the requirements," Marchionne said.
Whether associated with an IPO or company profitability, the Chrysler CEO reiterated again how crucial the roll out of new models is to sustained performance. Marchionne touched on how the OEM has 16 all-new or refreshed products in the works, including the all-new Chrysler 300, Dodge Charger, E-CUV, Jeep Grand Cherokee, the iconic Fiat 500, and the Sebring replacement
"I think calling these refreshes is an insult to the cars," Marchionne interjected. "We had to do this because I think we were fully aware of what may have been perceived by our consumers as being severe shortcomings.
"The initiative was designed to completely refresh what we refreshable in a short period of time and in a significant way. So 75 percent of the portfolio has been touched by this," he added.
Additional Details About Trapasso Appointment
Automaker executives explained that as senior vice president of external affairs, Trapasso is responsible for providing strategic direction on Chrysler international, federal and state government relations. They also are looking to Trapasso to coordinate the activities of the corporate representative in Latin America as well as lead the company's community relations efforts and The Chrysler Foundation.
Trapasso joined the OEM from international law firm Crowell & Moring where he was senior counsel, advising clients on public policy matters on both domestic and international issues.
Previously, Chrysler noted that Trapasso served as senior adviser to the chairman of the Democratic National Committee to provide strategic counsel on major donor fundraising programs and on the 2008 presidential election. Furthermore, Trapasso also has held various senior-level positions within the federal government, including assistant counsel to the president for the Office of Presidential Personnel at the White House during the Clinton Administration.
"With this announcement, I want to thank Rob Liberatore, ad interim external affairs adviser, for his commitment and contribution to our company during this search process," Marchionne stated.
Chrysler added Liberatore will stay on with the company in order to assist with the transition.
Major Plant Investment in Indiana
In yet more news from the automaker, Chrysler also announced on Tuesday that it would invest $43 million in new equipment and tooling to expand its operations in Kokomo, Ind.
Executives explained the investment will be used to increase capacity at their Kokomo casting and Kokomo transmission plants, adapt them to support production of the World Engine and improve processes for the 62TE transmission program.
With this announcement, Chrysler pointed out that it has invested nearly $1 billion in its powertrain operations since 2007.
Back in December of last year, the company recounted that it pushed $179 million in its Global Engine Manufacturing Alliance (GEMA) plant in Dundee, Mich. The facility is set to produce the 1.4-liter, 16-valve Fully Integrated Robotized Engine (FIRE).
In May of 2007, Chrysler also orchestrated a $730 million investment in the Pentastar engine program, which began production at the all-new Trenton, Mich., Engine Plant this past March.
Executives reiterated that the World Engine is built at the GEMA facility in Dundee. They said GEMA produces the 2.0- and 2.4-liter I-4 for use in the Chrysler Sebring and Sebring Convertible, Jeep Compass and Patriot and Dodge Avenger, Caliber and Journey.
Meanwhile, the company added the 62TE transmission is used in the Chrysler Sebring, Sebring Convertible and Town & Country and the Dodge Avenger, Journey and Grand Caravan.
The automaker highlighted that Tuesday's investment announcement in Kokomo will create 399 new positions. The company indicated the figure included up to 379 spots to be filled by employees called back from lay-off status and 20 new hires in supervisory positions.
"As Chrysler Group works to implement the very robust business plan outlined on Nov. 4, 2009, our facilities in Kokomo will play an integral role in achieving those objectives," explained Scott Garberding, senior vice president and head of manufacturing for Chrysler.
"This investment will keep our facilities at the forefront of innovation and advanced technology," Garberding continued.
"We want to thank the city of Kokomo for approving our tax abatement request and their continued support, he added.
Local officials were delighted with Chrysler's decision.
"Over the past several years, Chrysler has shown a continued commitment to investing in Kokomo, allowing our plants to stay on the cutting edge of automotive technology," noted Kokomo mayor Greg Goodnight.
"This investment is great news for Chrysler, and it's great news for our community," Goodnight added.
More Overall Assessment from Marchionne
While nearly reaching one year as CEO, Marchionne was probed earlier this week about Chrysler's performance since he took the helm.
"I think it's been a great experience," Marchionne stated. "We've got a great management team. I think we lived through hell here in the first six months of the process. There's a lot naysayers out there about what we would be doing. We've been pretty quiet and will continue to be that way.
"I think what is important to us is product and distribution. Those two things continue to be our main focus," he went on to emphasize. "We need to let the brands speak for themselves. I don't like grandstanding. I don't think it's a style of the house. I'd much prefer to prove our projections with facts. The first quarter is an indication of good performance. I take it as an encouraging sign. The rest of it is in the making. We'll see this as we go forward."
Marchionne wrapped up the call by stressing how Chrysler performed in the first quarter of 2010 is an indicator of what the automaker could show in future financial disclosures.
"It is my hope that we'll be above zero on operating profit for every quarter going on here through the end of the year. I think that's the only thing I really care about," Marchionne said.
"I don't want us to be the biggest carmaker in the world. I want us to be the most profitable," he continued. "That requires discipline and also humility because this is a vicious market. Before we go out and blow our horn about anything, I think we've got to be on very firm ground."