Sergio Marchionne, the chief executive officer seeking to combine Chrysler Group LLC with Fiat SpA (F), predicted that the U.S. automaker’s future ownership structure won’t be clear until the third quarter.
Fiat is discussing financing options with banks in preparation to buy the 41.5 percent of Chrysler it doesn’t own, people familiar with the matter said last month. Marchionne, 60, said yesterday that his preference has been for Chrysler to avoid an initial public offering.
“I don’t see any clarity on this until the third quarter of this year,” Marchionne told reporters yesterday after disclosing $374 million of investments in Chrysler transmission plants in central Indiana. The executive said his “best estimate” is that Fiat has a 50-50 chance of avoiding a Chrysler IPO and creating “one organization.”
Marchionne is relying on Auburn Hills, Michigan-based Chrysler to sustain earnings as he works to end losses at Fiat’s mass-market brands in Europe by as soon as 2015. The Italian carmaker would have posted a 1.04 billion-euro ($1.36 billion) loss in 2012 without Chrysler. Fiat also is confronting political instability in its home country that could raise borrowing costs, Marchionne said yesterday.
The United Auto Workers union’s voluntary employees beneficiary association, a medical benefits trust for Chrysler retirees, owns the remaining Chrysler stake not held by Turin, Italy-based Fiat.
Fiat, Chrysler and the trust, known as VEBA, are entering a “multi-month undertaking” involving talks with banks about the best option for the interested parties, Marchionne said. Chrysler also would need to go through the process of changing to a corporation from a limited liability company if the VEBA elects to proceed with an IPO, he said.
Fiat is Italy’s largest manufacturer and may be among the companies hardest hit by the political turmoil in the country after a general election resulted in a hung parliament. Fiat’s sales in Italy accounted for more than half of the company’s European deliveries in January.
The borrowing costs of most Italian companies “effectively follow the same yield curve that the government bonds follow,” he said. “To the extent that there’s a spike in national borrowing costs, it will negatively impact on Fiat. That’s something that we obviously find incredibly unpleasant.”
Fiat has enough cash resources, so Italy’s issues are “not an immediate problem,” Marchionne said.
“A relatively short-order resolution of the Italian political leadership issue is crucial,” he said. “Over the medium term, if it continued, it would have a negative impact on Fiat, but not in the next 12 months.”
Fiat’s plans to boost production in Italy for export to global markets “remain unchanged,” Marchionne said yesterday. The carmaker had been working with defeated Prime Minister Mario Monti on tax breaks and other changes to make it more attractive for Fiat to export from the country.
“The work started, and then the government changed,” Marchionne said. “We have to wait until the new government gets installed to resume the discussions.”
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