Chrysler Group posted net revenue of $72 billion in 2013, an increase of 10% from $66 billion during 2012. This was the direct result of an increase in vehicle sales, primarily the Jeep Grand Cherokee, Cherokee and Ram pickup trucks in the U.S., as well as the Town & Country and Caravan minivans. (Jeep set an all-time global sales record for the second consecutive year of 732,000 vehicles.) Full-year net income was $2.8 billion, up from $1.7 billion a year earlier.
The weakest Detroit Three company – with a limited product line and slim global sales – is clearly doing well as the American economy continues to recover slowly in spite of the inaction by politicians in Washington. Chrysler Group has $1 billion cash on hand and to quote an auto mogul of an earlier time is holding ‘one white chip’ at the table in the global automotive poker game. Its success in this high stakes game is by no means assured.
On scrutiny these results are not as good as they may seem to sound. Special items for 2013 included a tax break of $962 million for the release of deferred tax assets during Q4, and a $24 million loss on two debt re-pricing transactions during the year. Adjusted net income for the year was $1.8 billion, an increase of 9% from $1.7 billion a year earlier. Yes, good, but in the automotive big leagues this is not enough to ensure survival in a business that requires at least $6 billion or more of capital expenditures each year, every year just to stay competitive and refresh the products.
Net revenue totaled $21 billion for the fourth quarter at Chrysler Group. Net income for Q4 was $1.6 billion, including special items of $961 million that boosted the bottom line. Nonetheless, this was Chrysler Group’s tenth consecutive quarter of positive net income. Adjusted Net Income for the fourth quarter of 2013 totaled $659 million, up 74% compared with the same period a year ago. Combined with some deft maneuvering between the Fiat-controlled company and the United Auto Workers Union, which wanted out of its more than 40% stake, Chrysler enters 2014 in decent shape, arguably better shape than Fiat with its $9 billion in debt, and that’s the issue.
The question remains whether a regional company that thrives on sales of trucks and minivans in North America can survive in the global automotive business as part of Fiat, which has its own severe problems starting in its home market and the rest of the moribund EU. Without Chrysler’s contribution, Fiat lost $321 million during Q4.
As Chrysler was reporting earnings, the Board of Directors of Fiat S.p.A. approved a corporate reorganization and a new company called Fiat Chrysler Automobiles, aka FCA. Following Fiat’s acquisition of the equity interest in Chrysler Group previously held by the United Autoworker’s VEBA Trust, Fiat Chrysler Automobiles will be registered registered in the Netherlands, as the parent company of the Group.
FCA’s common shares will be listed in New York and Milan. It will be interesting to see how the market values them. And thus far it is unknown where the new company will be headquartered – Fiat is the largest private employer in Italy and Chrysler is the largest private employer in Detroit.
Sergio Marchionne, CEO of Fiat and Chairman/CEO of Chrysler Group says, “Five years ago we began to cultivate a vision that went beyond industrial cooperation to include full cultural integration at all levels. We have worked tenaciously and single-mindedly to transform differences into strengths and break down barriers of nationalistic or cultural resistance. Today we can say that we have succeeded in creating solid foundations for a global automaker with a mix of experience and know-how on a level with the best of our competitors. An international governance structure and listings will complete this vision and improve the Group’s access to global markets bringing obvious financial benefits.”
If only it were that simple.
Fiat shareholders will receive one share of FCA common for each Fiat share they now hold. The transaction is expected to be completed by the end of this year. The Group will present a long-term business plan to the financial community at the beginning of May 2014.
Chrysler Group also announced that it plans to offer $2.7 billion in secured senior debt, as well as plans to sell additional loans to raise up to another $2 billion. The net proceeds, together with borrowings under term loans will be used to repay all amounts outstanding under the unsecured note issued on 10 June 2009 to the UAW VEBA Trust.
Bottom line here is the UAW is out of its Chrysler investment. Fiat is all in with uncertain prospects going forward.