Chrysler Posts Profit, Restructures Debt on Road to IPO

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Researched by Industrial Info Resources (Sugar Land, Texas)--Each and every month, Chrysler Group LLC (Auburn Hills, Michigan) makes progress on its road to recovery from filing for bankruptcy protection in 2009. While competitor General Motors (NYSE:GM) (Detroit, Michigan) managed to make the return to respectability very rapidly after its own bankruptcy ordeal, Chrysler has taken a slower approach to recovery. Mostly, this has been due to the difference between the massive GM machine and the much smaller Chrysler, which has had more significant problems to overcome, including a complete overhaul of its entire lineup of vehicles. However, Chrysler has now posted its first quarterly profit since its bankruptcy, and it is making significant progress on its plans to restructure its debt in order to file its own initial public offering (IPO) in the coming months.

Chrysler reported a net income of $116 million in the first quarter of this year, a significant improvement over the $197 million loss during the same quarter last year. Revenue has continued to improve for America's third-largest automaker, jumping 35% in the first quarter to $13.1 billion, while the company reported an operating profit of $477 million during the quarter. Chrysler's leadership continues to maintain that it will post total revenue of $55 billion for the year, with net income of between $200 million and $500 million, key figures for the automaker to make the move to file its IPO.

Chrysler and its leadership have indicated that the automaker is still on track to file its IPO by the end of this year at the earliest. More than likely, the automaker will file in the spring of 2012. Fiat SpA (Italy), which owns the controlling interest in Chrysler, is helping the automaker make all the correct moves in a timely manner. Chrysler has revamped its entire lineup of 16 vehicles, and its new Jeep Grand Cherokee and Chrysler 300 have been receiving rave reviews. Chrysler also has begun selling the Fiat 500 model during the first quarter, marking the return of Fiat to the North American markets.

Chrysler announced a number of weeks ago that it was working on a plan to restructure its $7.5 billion in bankruptcy-related debt. Chrysler currently owes $7.5 billion to the U.S. and Canadian governments, including the government of Ontario, which all put up the money necessary to keep Chrysler alive when the automaker went through bankruptcy. Chrysler has indicated that it will borrow $3.5 billion in a senior secured six-year term loan and $2.5 billion in secured bonds, which will have maturity rates of eight to 10 years; also, it will borrow $1.27 billion in cash from Fiat in order to repay the governments and to reduce its interest rates, making its IPO a possibility in the coming months.

Fiat currently owns 30% of Chrysler and is quickly meeting all of the benchmarks it must take to increase that stake. Fiat is going to exercise its option to obtain an additional 16% through the $1.27 billion loan in the second quarter. Later this year, Fiat will push its stake in Chrysler to 51% when it pays off the balance of its loans from the U.S. and Canadian governments and meets the final performance goals in the bankruptcy agreement.

Chrysler also has relieved itself of its electric vehicle business. Polaris Industries Incorporated (NYSE:PII) (Medina, Minnesota), a leading manufacturer of snowmobiles, motorcycles and other off-road vehicles, has agreed to purchase Global Electric Motorcars LLC (Fargo, North Dakota), Chrysler's electric vehicle arm. Global Electric Motorcars, or GEM, was a legacy of the old DaimlerChrysler experiment that failed so horribly a few years ago. GEM manufactures a lineup of electric vehicles that have top speeds of 25 miles per hour and are known as more "neighborhood" type vehicles. GEM vehicles are used extensively by governmental agencies, resorts, planned communities, educational institutions, medical campuses, corporate campuses, sports teams and taxi shuttle services around the globe. While the purchase price has not been announced as of yet this will be one less burden that Chrysler does not have to carry into the future. The sale is expected to be completed by the end of June.

Chrysler, with some significant help from Fiat, has taken a slow, steady approach to its recovery, an approach that has been working quite well for the automaker. Sales are improving, as is the image of Chrysler in North America. Chrysler's new vehicles are making an impact on the market, and Fiat's reintroduction to the continent only will help. Given the current problems facing many of the foreign automakers, especially the Japanese, Chrysler has positioned itself to make a huge impact on the market in the coming months, and could quite possibly claw its way back up the rankings to a top position again in the near future.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.