THE BLOG
11/01/2013 01:01 pm ET | Updated Jan 23, 2014

The Chrysler IPO Is Coming. Are You Buying?

AP

Chrysler-Fiat CEO Sergio Marchionne says the plan to do an initial-public-offering is in "overdrive," and that he hopes to have people buying shares in Chrysler by year end.

"We are now intent on executing the IPO," Marchionne said during a conference call with analysts this week. "It is still my expectation that we will be able to get it done, I hope that we can get it done by the end of this year."

Whether he pulls off the IPO by the New Year may be a reach. After all, the company would have to put together its road show for investors and analysts before we get into the holiday distractions. The question for Marchionne, and those possibly teed up to buy the shares of the storied automaker is this: Is Chrysler a "buy"?

Let's break down the issues and the company as they stand today.

  • Auto industry shares have been very good to investors. General Motors is near its 52-week high, with the spread between it's low and high over the last year a gain of 62%. Ford's shares have been up 73% in the last year. Toyota's American Depository Receipts are up 77%. Auto supplier TRW shares have been up 76% in the last 52 weeks. All that compares with a gain of 26% for the Dow Jones Industrial Average over the same time period.
  • Chrysler posted earnings of464 million in the third quarter, a 22% gain over the same period a year ago. That could have been closer or above1 billion had Chrysler not had to delay shipping the new Jeep Cherokee, which had problems with its nine-speed transmission in production. On the plus-side, if the problems are indeed fixed, the company should score great sales for the new car, which is exceptionally good and has the benefit of low gas prices to help its launch.
  • Demand should remain at a healthy 15.5 million vehicles a year or so for the next five years, with upside as consumers continue to retire vehicles that are over 10 years old.
  • Chrysler posted an 11% gain in sales during October. The company has been deft at maintaining a strong and steady sales rate despite not having a full compliment of vehicles. The Chrysler brand, for example, has just three models now. Jeep has been without a mid-sized crossover for more than a year when it stopped production of the Liberty to re-roil for the Cherokee, which is only now shipping. More new product from Jeep, Chrysler and Dodge next year should help a lot.
  • The Ram pickup business has become hugely successful and profitable and figures to remain so.
  • Marchionne would like to buy the 41.5% of Chrysler that Fiat does not already own, but the retiree health trust which owns the stake, a legacy of the 2009 bankruptcy, wants more money than Marchionne wants to pay. The two sides are more than1 billion apart. Hence, the IPO. The Trust expects to better monetize its holdings in the open market than it would if it took Marchionne's current offer. I bet the Trust does do better through the IPO. Last month, UBS AG set the value of the trust's stake at5.6 billion, higher than the4.25 billion Fiat has been offering.
  • Marchionne is in the weird position of leading the automaker and the IPO, but being against ding an IPO. He would rather have Fiat buy the remaining shares from the Trust. It is the Trust's shares that will be offered to the public. Fiat does not plan to sell any of its shares to the public, at least in the beginning.
  • The company expects a full-year profit of between1.7 billion and2.2 billion on revenue of between72 billion and75 billion.
  • Marchionne has been mostly a very savvy CEO, and seems to have all the chess pieces of running two companies well in hand. Sales numbers and earnings since he took over have been steady and solid. But he has not been without some costly and visible mistakes. By his own admission, his team blew it by ending the Liberty more than a year before the Cherokee was ready. He has also admitted botching the launch of the Dodge Dart by having the mix of models wrong at the start. The company also choked on the launch of the Fiat brand in the U.S., not having the availability of the Fiat 500 synchronized with the readiness of the dealer body. The frequently talked about re-launch of Alfa-Romeo has been delayed a few times now, and the delays make the enterprise look amateurish. Those are big blunders that would seem to be attributed to not having the right people in charge of those launches.
  • The IPO could be a drama because of the rift between Marchionne and the healthcare trust, and the CEO's wish that the IPO never had to happen. The wild card is whether Wall Street values the shares close to what the Trust is looking for. But with all that drama, maybe investors are better off looking at Twitter.