Fiat’s Sergio Marchionne said he’s considering backing out of a plan to integrate further. But is he bluffing?
DETROIT – In what one industry expert said is a bluff, Fiat and Chrysler CEO Sergio Marchionne has warned that Fiat may cooperate less with its U.S. partner if Chrysler sells shares to anyone else.
Fiat “is considering whether or not to continue expanding the Fiat-Chrysler Alliance beyond its existing contractual commitments,” Chrysler stated in a 396-page document filed Monday with the U.S. Securities and Exchange Commission.
It’s a mixed message for a company trying to complete an initial public stock offering, but there’s a reason for Marchionne’s apparent lack of enthusiasm.
Not only has Chrysler risen from death’s doorstep to achieve sustained profitability, it’s also expecting to earn a profit this year of between $1.7 billion and $2.2 billion. And the company’s share of the U.S. new vehicle market has jumped from 8.8 percent in 2009 to 11.2 percent last year.
Chrysler’s profits are offsetting Fiat’s losses as the Italian automaker restructures amid the deepest European economic downturn in about 30 years.
Erik Gordon, business and law professor at the University of Michigan’s Ross School of Business, said Marchionne is bluffing because he would prefer to negotiate a Fiat buyout of all 41.5 percent of the Chrysler stake held by the United Auto Workers’ Retiree Medical Benefits Trust. But so far he has not offered what managers of the trust consider an adequate price.
“Fiat is not considering backing away,” said Gordon, who studies initial public offerings. “That is a negotiating ploy.
“I don’t think this IPO is really going to happen. I think Marchionne and Fiat will end up coming up with a price that is satisfactory to the retiree trust.”
Fiat owns 58.5 percent of Chrysler. Even if a hedge fund or other large investor bought a large portion of the Chrysler shares, it would not likely disrupt Fiat’s strategic plan.
Credit rating agency Standard & Poor’s said Tuesday that its rating on Chrysler’s debt remains unchanged.