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Chrysler IPO In 2011: Will It Or Won't It?

SEC filings aren't normally big news, except when your CEO says one thing and your PR department says something else. This happened recently, when at the Geneva motor show Fiat and Chrysler head Sergio Marchionne reported that Chrysler had filed an S-1 with the SEC, a precursor to an IPO. Chrysler shut that one down with a later clarification, but it makes you wonder if Marchionne isn't sending some signals.

After all, it's not as if a Chrysler IPO hasn't been much discussed. Ideally, it would happen later this year. Interestingly, while Chrysler's bankruptcy preceded General Motors (GM) -- and acted as a sort of practice round for the government -- GM's return to the NYSE happened in advance of Chrysler's. But this was necessary, as GM wound up in much better shape post-bankruptcy that its old Big Three competitor.

New Chrysler stock for the first time since 1998
That Chrysler is even confusing news organizations about a forthcoming IPO is kind of stunning. Its 1998 "merger of equals" with Daimler was a disaster, and things didn't get any better in 2007 when Daimler sold most of its stake to Cerberus Capital Management. This was a real lost decade for the Pentastar, with only the bold 300 sedan and the usual minivan triumphs to keep it going.

Chrysler still hasn't started making money, unlike GM and Ford (F), but it expects to go revenue-positive this year, and there's qualified speculation out there that its IPO market value could come in at $30 billion. I like to entertain myself with the idea that Marchionne enjoys jerking reporters' chains and will offer a few more strategically mistaken utterances about Chrysler's SEC obligations before the real run-up to the IPO road show commences.

Marchionne's bizarre balancing act
With Fiat and Chrysler, Marchionne find himself with a thorny problem. Fiat needs the additional capacity that Chrysler provides for the combined enterprise to hit its yearly global production goal of 5.5 million -- the point Sergio reckons he needs to be for steady profits. However, as the Economist has pointed out, building more cars right now can only exacerbate a worldwide overcapacity problem.
Here's where Chrysler might actually have an advantage. Unlike GM and Ford, it's been so starved for product the past few years that it's returning to market effectively as a new brand. Its cars and trucks have also had a tendency to stand out, design-wise. It also now has Fiat providing the small cars, and like the sassy new 500, these also stand out. It should have electric car designs on the table (and did, pre-bankruptcy), but unlike the competition, it doesn't really need them right now.

What's the worst that could happen?
Chrysler's survival, given the last ten years, is a miracle. If the U.S. auto market continues to recover and can hit something like 14 million in vehicle sales this year, then Chrysler's IPO will probably be successful. There's not much chance that it will ever be much more than a distant third to Ford and GM, and it remains to be seen what Marchionne plans to do with the brand internationally. But modesty could be a virtue in this case.

Chrysler does have an ace in the hole and that's the rugged Jeep brand. It's ready-made for success in the developing world, where one finds the most rapidly growing buyership for new cars. In fact, Jeep is the cornerstone of Fiat-Chrysler's China strategy. And, it's worth noting, the first thing the company could sell if everything goes horribly wrong.


Photo: Chrysler Media
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