Odds Of Chrylser IPO Dim

“Under promise, over deliver.” Someone forgot to tell Chrysler CEO Sergio Marchionne. He announced that he intends to have an IPO for the No.3 US car company in the second half of next year.

It is likely that the UAW, which owns two-thirds of Chrysler, would like to be able to sell some of its stake, but that will not matter if the company cannot support public ownership.

The GM IPO has not made it out the door. There are concerns on Wall St. that the domestic and European car markets have begun to move toward a double dip recession. Sales in China have slowed.

Chrysler has extremely modest sales in China, so that will not be a factor to investors. What will matter is whether the firm can stay profitable. It made a very modest operating profit of $183 million in the second quarter and a net loss of $172 million.

Chrysler’s sales are up 10% so far this year, behind the 18% of domestic market share champion Ford Motor (NYSE: F).  The Jeep division of Chrysler has launched several new models, but the Dodge and Chrysler divisions have the oldest fleets of any major car company which sells vehicles in the US.

Chrysler has decided to gamble on its ability to bring Fiat models to the US. Fiat owns 20% of Chrysler, and it is, for all practical purposes, the management company that controls it. Whether Fiat autos will sell in American is a matter of speculation. It would hardly be wise to gamble that Fiats and a yet-to-be-released line of new Chrysler cars will storm the market and take share from companies that have done well in the US market for many years.

Chrysler’s projections have probably also not taken account that the American car market, which produced sales of over 16 million vehicles in 2005, will generate only 11.5 million or so this year. That number is not rising according to sales over the last two months.

Chrysler may never do well enough to have an IPO. Marchionne knows that better than anyone.

Douglas A. McIntyre