CEO says, Chrysler is profitable, will not rush to IPO

Chrysler, the # 3 US carmaker.

Chrysler, the # 3 US carmaker, would be profitable on a net basis if it were not for the interest costs of loans remaining from its bailout, the automaker’s CEO said Friday.
Sergio Marchionne, who heads both Chrysler and its controlling partner Fiat SpA, also repeated that he expected Chrysler would launch an initial public offering in Y 2011 to cash out part of the stake held by a union trust fund.

Chrysler is set to report Q-2 earnings on August 9.

Marchionne, speaking to reporters after a Detroit Chrysler plant visit by US President Barack Obama, said the carmaker would have been profitable in the Quarter if it had not been for the financing cost on its government loans.

Chrysler took UD$7B in government loans and another US$5B in bailout and bankruptcy financing. Under the terms of its bailout it is not required to make payments on principal on the US$7B US Treasury loan until Y 2011.

“The only reason we are not making money on the net is that I pay interest on the loans I took from the government and I have money in the bank to cover that debt,” he said. “Actually, against the Treasury we owe them nothing. We have enough cash to pay it all off.” “But you can’t run a business without cash, so it’s just a function of our capital structure. If we had taken those funds as equity as GM did, we would have been making money, net, right now,” Marchionne said.

Marchionne said he expected Chrysler would be able to reduce its reliance on lower-margin sales of vehicles to fleet operators like rental car agencies as the US market recovers.

“Hopefully in the month of July we will see the stronger market that is indicative of the rest of the year,” he said. “We are making money and I am happy.”

A trust fund that pays retiree healthcare expenses aligned with the United Auto Workers union owns 55% of Chrysler. Marchionne said a public stock offering to “monetize” that union stake in the carmaker would have to happen but was not likely before Y 2011. “I have been clear on this, I think we will do it in 2011,” he said.

Chrysler’s larger rival General Motors Co, majority-owned by the US Treasury, is preparing for its initial public offering (IPO) and will file for the stock offering in August, people with knowledge of that process have said.

“I am waiting for GM to go first, they are bigger,” Marchionne said, when asked by reporters about an IPO.—Paul A. Ebeling, Jnr. www.livetradingnews.com

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