Is Chrysler IPO Delay an Auto Industry Warning?

Sergio Marchionne, the CEO of both Chrysler and Fiat, says the initial public offering of the troubled U.S. car company could be delayed until 2012. He claims that the decision will be based on the cash needs of the company and payments to the United Auto Workers healthcare trust. The union owns 63.5% of Chrysler as part of concessions made when the company was restructured with aid from the U.S. government.

Investors in car companies -- particularly U.S. auto manufacturers -- must wonder whether the Chrysler decision is due to larger problems in the industry. Car companies will shortly announce March domestic sales, which are expected to be up nearly 20%. But March sales may not say much about the balance of the year.

Chrysler lost $652 million in 2010 -- very different from the results of GM (GM) and Ford (F), each of which posted profits, along with most global car companies. First-quarter results this year for the two largest U.S. car companies were also strong. But the last three quarters may be another matter.

The most obvious challenge to domestic car sales is the parts shortage due to the March 11 earthquake in Japan. But that may be the least of the industry's worries. Auto manufacturers face several other problems.

The first hurdle for car companies is that consumers may be disinclined to buy new cars as gas prices rise toward $4. The second is that some real estate experts, including guru Robert Shiller, say home prices could drop anther 10% this year. As many people see their mortgages move further underwater, concerns about personal finances and retirement funds will grow. Some estimates put the number of underwater mortgages in the U.S. at over 20% of all home loans. Finally, persistent unemployment has taken millions of potential buyers out of the car market. The growth in jobs has been slow and halting.

Chrysler may be a canary in the coal mine. If so, car companies could face three quarters of compressed earnings.


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dang6510

Chrysler got no compact fuel efficient vehicle to counter the ongoing rocketing fuel price. Their most fuel efficient vehicle only accommodate 20 to 27-mpg.

April 01 2011 at 4:30 PM Report abuse rate up rate down Reply
Ron

Let all GOVERNMENT MOTORS go (NO MORE BAIL OUTS)...Only FORD is True American !

Sink or Swim...

April 01 2011 at 3:47 PM Report abuse +1 rate up rate down Reply
whdlsn

The government has plunged itself into the automotive industry and has messed it up. The marketplace demand should dictate what is made, not governmental whim and "PC" viewpoint. I want a V-8, rear wheel drive vehicle, not some crappy tin can roller skate with a four banger. I'm the one paying for the car and the gas, that's what I want. This may not be for everyone, but there is a market place for this type of vehicle. Government functionarys were political science majors, not trained as automotive engineers. They shouldn't be designing cars that I have to pay for.

April 01 2011 at 1:31 AM Report abuse +1 rate up rate down Reply
johnebigjohn

To any real Americans that stop by to read these comments. Understand that 95% of these comments have been posted by people paid to try and shine a negative light on the actions of the President. They try and undermind your ability to make your own decisions and come to your own conclusions. For the love of god the "budget cuts" proposed by the tea/republican party wants to cut funding for PUBLIC SCHOOLS, MEDICAL RESEARCH, and THE FDA. Read understand and make form your own opionions.

April 01 2011 at 12:51 AM Report abuse -5 rate up rate down Reply
kenkeune

During the "W" Bush years, the price of steel tripled. Have you ever heard a Republican complain about that? Did Union wages triple? Are Chinese and Japanese steel mills run by the UAW? That rise in steel prices cut $1000 profit off each American made car. Did George Bush do anything to lower American steel prices? Or did he and his buddies invest in foreign steel? You antilabor people don't realize how you are being played for chumps. You are giving your power to other countries and hastening an entire world of Lords and Serfs, fooling yourselves into thinking you will become some of the Lords. You will lose all you have because of your intense hatred of people who want to be paid for their labor, which you believe should be free, as in slave labor. Must be wonderful to rationalize slavery!!! And one more thing: ALL companies fold because of bad management. Read Lee Iococoa's books.

April 01 2011 at 12:37 AM Report abuse +2 rate up rate down Reply
austinbrewster

hate to see CHRYSLER FAIL,In many ways historically they led the way in innovative engineering in suspension, ENGINE AND TRANSMISSIONS.Unfortunatley the Ceo Bob Nardelli's regime brought in profit before quality just to satisfy short sighted stockholders who demand profit at any cost and can't see beyond the next quarter results. This is the legacy of many American corporations. Nardelli also did the same thing when he ran Home Depot into huge losses. Oh well the floodgate will now be open of Chinese cars. They will be here soon enough. Thanks to the neo-con Milton Friedman economists.

April 01 2011 at 12:35 AM Report abuse +2 rate up rate down Reply
1 reply to austinbrewster's comment
David

It's all about economics, neo-con or not. I'm sure the Chinese auto manufacturers don't have to pay the same wages per hour for an assembly line employee whose only job is merely putting a wheel on one of their cars. US unions need to get with the program. The world has passed them by.

April 01 2011 at 1:01 AM Report abuse +1 rate up rate down Reply
cbody67

Unions can be bad (as many non-union people claim). Unions can be good (as many pro-union people claim). Unions do what unions are supposed to do -- advocate and seek certain workplace protections for their members. Unions exist due to workplace issues which management would not fix, generally, at least in the old days. Management and unions CAN work together to everybodys' mutual benefit!

Unions allegedly have gotten their members higher hourly wages, but it just depends upon which industry the union is in . . . by observation. Great healthcare benefits . . . many times unions had these things well before the general public. Now, union retirees are being hit with many benefit decreases, loss of insurance coverages, and other things they "paid for" through their work.

Factory work, where unions usually exist, is not nearly like sitting in an office all day. Highly repetitive work for an 8 hour shift. Higher seniority can lead to "off line production" in the automotive plants.

For far too many years, "financial people" have advocated manufacturers to cut costs via "outsourcing" of jobs . . . although not initially recommended, the eventual place these jobs went was either India or China. This was supposed to decrease costs and allegedly increase corporate profits. When GM shifted the last years of Chevy El Camino production to Mexico, these vehicles still cost like they were built in Michingan! Where were GM's higher dividends?

"Financial People" have motivated manufacturers to close plants and send the jobs somewhere else . . . so the shareholders can allegedly get higher dividends. Many of the things these same people have advocated have also helped erode the USA MIDDLE CLASS, which initially rose to prominence with the help of good-paying factory jobs which helped propel the USA Economy to new heights. EVERYBODY made money! Money was in circulation!

"Break the Unions!" advocates seem to have little knowledge of what made things great in the USA manufacturing sector. A new car dealership acquaintance was advocating for the UAW to be "broke" . . . that their members made too much money per hour (excluding benefits) . . . but this same manager sees no problem with charging our customers $100.00/hr labor to repair vehicles . . . as the alleged union wage to build the cars (benefits included) was more like $75.00/hr when he said that. Who's higher paid? Or rather . . . where's that money going?

Breaking the union might appeal to the far right-wing "fiscal conservatives", who always want to spend less and get more, but such "breaking" will NOT have the alleged benefits for the company . . . or the stockholders. Similarly, lower taxes = less tax revenue to fund infrastructure expansions AND maintenance!

Lower taxes = fewer police/fire dept employees driving fewer vehicles to fires = longer response times as an example. Those public servants don't work for free, nor are the utilities for the buildings they work out of totally free, either. Everybody wants their streets fixed, but then complain when there is no available funding for even minor repairs . . . due to decreased tax income. WHEN are they going to connect the dots?

April 01 2011 at 12:13 AM Report abuse +2 rate up rate down Reply
bansheemarc

If you knew about the petrol dollar and how it is critical to our economy that countries buy oil using the U.S. dollar you would understand how it is vital for them to sell us products such as cars so that the dollar comes back to the Federal Reserve. So, you go ahead and keep believing that buying only american cars are in our own best interest. It aint.

April 01 2011 at 12:05 AM Report abuse -3 rate up rate down Reply
1 reply to bansheemarc's comment
johnebigjohn

The Federal Reserve is the BIGGEST SCAM in the history of America!!! How much does it really cost to print a single dollar bill?

April 01 2011 at 12:24 AM Report abuse +2 rate up rate down Reply
johnebigjohn

Hey Chrysler build me a car that gets 75 mpg. I dont care if it looks like a turd with four wheels and smelled like one. For 75 mpg I would pay 40,000 RIGHT NOW!!!

April 01 2011 at 12:01 AM Report abuse -1 rate up rate down Reply
1 reply to johnebigjohn's comment
richard

Want 75 mpg? How about a Chevrolet Volt? Made in Michigan.

April 01 2011 at 12:20 AM Report abuse +1 rate up rate down Reply
cliffy934

I bought a 1980 Plymouth Aclaim in 1980, was a fine little automobile. It was a 4 cylinder, got good gas mileage, and never used any oil. Had 195,000 when I traded it in. Was a good car, but did not have the power to pull a greasy string from a cats but.

March 31 2011 at 11:54 PM Report abuse +1 rate up rate down Reply