Marchionne wants all of Chrysler

January 15, 2013
Marchionne wants all of Chrysler

Sergio Marchionne says Fiat SpA will end up owning all of Chrysler Group LLC, though he acknowledged that the process may get messy.

The Italian automaker already owns 58.5 percent of Chrysler. The rest is owned by an hourly retiree health care trust run by the United Auto Workers — part of the 2009 bailout deal that gave control of the Auburn Hills automaker to Fiat. But Marchionne, who is now CEO of both companies, has long made it clear that he wants the whole thing.

Last week, the UAW trust — known as a voluntary employees’ beneficiary association, or VEBA — took the first step to taking part of its shares in Chrysler public again. Marchionne said Monday, at the Detroit auto show, that he welcomed the VEBA’s decision to “explore” an initial public offering, but stressed that will not change the ultimate outcome.

“Eventually, we’ll end up having a merged company,” he said.

Marchionne stressed that it was always understood that the VEBA would sell its shares in Chrysler.

“They have no mandate to be a shareholder of a car company,” he said. “They have to convert (their shares) into cash sooner or later.”

Marchionne said the trust’s request to register a portion of its shares is “totally consistent” with the 2009 agreement, which was brokered by the Obama administration. But he said the VEBA is “not obliged to carry out an IPO.”

Either way, he said Chrysler will be converted from a limited liability company into a corporation, a process that Marchionne said will take eight to nine months. That conversion will require its own negotiations between Fiat and the UAW’s trust.

“These are all things that are healthy anyway. They need to be done,” he said. “Ultimately, VEBA wants cash … We need to find a way for them to get cash. Whether it happens through a larger transaction involving Fiat or whether it involves the IPO of Chrysler itself is almost secondary. I can only tell you one thing: that Fiat has no interest in either diluting its current interest in Chrysler (and) Fiat has no interest in relinquishing its right to exercise its call options that it has.”

Those options require the VEBA to sell small chunks of its Chrysler shares to Fiat every six months. Fiat has already tried to exercise two of its options — each for more than 3.3 percent of Chrysler — but has been unable to agree on a pricing formula with the UAW’s trustees. Last year, Fiat asked a federal judge in Delaware to settle the matter, and the two sides are awaiting a ruling.

“If we need to go through (the IPO) process to try and prove that point and establish a benchmark valuation … fine,” Marchionne said. “This is all part of an exiting process from Chrysler. It needs to go through its steps. I have no preconceived notion about how it will ultimately turn out, other than the fact that I know the VEBA will not be a long-term shareholder in Chrysler — and it shouldn’t be.”

Chrysler has become vital to Fiat’s survival as the Italian automaker struggles with plunging demand for new vehicles in its home market and across Europe in general. Marchionne said the Fiat-Chrysler group sold about 4.1 million cars in 2012. Approximately 2.4 million of those were Chrysler products.

“Today, Chrysler represents 60 percent of the total global volume of the combined Fiat-Chrysler brands,” he said. “It’s the single-largest driver of volume in the Fiat-Chrysler world.”

That is why Marchionne is determined that Fiat will acquire the rest of Chrysler, one way or another. On other topics Monday, Marchionne said the re-launch of Alfa Romeo in the United States is taking a back seat to the revamping of Fiat’s Maserati brand, which is a more central part of the company’s strategy to fix its European business by concentrating on its upmarket brands. Furthermore, he added, the subcompact and compact Chrysler products that the company planned to introduce in 2013 had been delayed to pay for the makeover of the Jeep Grand Cherokee.

The all-new Dodge Dart that was a star of last year’s Detroit show, Marchionne admitted, has done “not as well as I wanted.” The small car will get a new nine-speed transmission to overcome powertrain deficiencies.

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