By Dee-Ann Durbin
DETROIT: After a profitable third quarter, Chrysler Group said it will proceed with an initial public offering of shares before the end of this year.
Italian automaker Fiat SpA owns the majority of Chrysler shares. Sergio Marchionne, who runs both companies, wants to combine them by purchasing the 41.5 percent of Chrysler now controlled by a United Auto Workers-run trust.
The two sides disagree on the value of the trust’s shares, and on a conference call Wednesday, the CEO said the sides haven’t reached a deal.
“We are now bent on executing the IPO,” he said.
The IPO would consist of shares currently held by the trust. Last month, investment bank UBS set the value of the trust’s stake at $5.6 billion. Fiat has gone to court seeking a judgment on the price, but the trial date is set for September 2014.
The news added drama to an otherwise less than surprising third quarter.
Chrysler’s net income rose 22 percent to $464 million as strong U.S. sales of the Ram pickup and Jeep Grand Cherokee masked weaknesses elsewhere. It was the Auburn Hills, Mich.-based company’s ninth consecutive profitable quarter.
Worldwide vehicle sales totaled 603,000, up 8 percent from a year ago.
They might have been higher, but the company delayed shipments of more than 30,000 new Jeep Cherokees to fix issues with its new nine-speed transmission. Scheduled to go on sale in September, the Cherokee began arriving at dealers last week.
The delay was partly responsible for Chrysler’s $400 million drop in free cash flow during the quarter. Marchionne said Chrysler’s U.S. dealers should be fully stocked with the new Cherokee by mid-November.
Marchionne said shutting down a plant for more than a year in preparation for the Cherokee was “painful,” and vowed not to repeat that for any future vehicle.
“We were naive in thinking that it would be a seamless introduction,” he said.
Chrysler reaffirmed its profit guidance, which it lowered in July. The company expects a full-year profit of between $1.7 billion and $2.2 billion on revenue of between $72 billion and $75 billion.
In the U.S., where Chrysler does three-quarters of its business, Chrysler’s sales rose 7.7 percent during the third quarter, lagging the total industry increase of 12 percent. Marchionne said that was partly due to a significant decrease in low-profit sales to rental car companies and other fleets.
Fleet sales made up 18 percent of Chrysler’s sales in the third quarter, compared with 34 percent in the same quarter in 2010.
Booming sales of the Ram and Jeep Grand Cherokee, both recently updated, helped boost Chrysler’s results. U.S. sales of the Ram rose 23 percent in the third quarter compared to last year, while Grand Cherokee sales jumped 30 percent.
Chrysler’s results boosted Fiat, which earned $260 million in the third quarter, up 11 percent from a year ago. Without Chrysler’s contribution, Fiat would have lost $340 million.
Marchionne can’t spend Chrysler’s cash on Fiat’s operations unless the companies merge.