So...Chrysler just became Insanity itself

[MinisterofDOOM]

Things just got weird.

Chrysler has just filed an IPO (the first steps to taking the company's stock public again). The situation is certifiably insane, and pretty much resembles two people playing p0ker with hands consisting of tomato slices while stone-facedly maintaining that they, in fact, have a royal flush. Depending on which news article on the topic you decide to read (google it, you'll find no shortage), this is more insane on one side or the other. My (very uninformed) take is that it's fairly universally nuts and unlikely to end well for everyone.

Let's break down the facts.

In 2007 when the company "restructured" under government direction, the need to offload the financial burden of retiree benefits was met by allowing the UAW to create a trust fund (known as VEBA) that would own a large but non-controlling stake in the company in lieu of actual money. This would ensure that the retirees got their benefits (at least in some degree) and that Chrysler was free of obligation on that part. VEBA affected GM also, but GM was not striken with a similar situation to this, likely for reasons I will detail in a moment.

Now that Chrysler is solvent again, VEBA has decided it wants to exploit its legal right to cash in on some of those shares (which would help it serve its purpose of benefitting Chrysler's former union retirees).

Fiat owns the controlling share in Chrysler, and does not want to pay more than their valuation ($3 billion) for VEBA's shares. Fiat (under Sergio Marchionne) wants to control 100% of Chrysler in order to form the next Renault-Nissan caliber international auto empire. VEBA feels that their shares are worth more and is fully aware that those shares are a necessary stepping stone on Fiat's path to that 100% ownership.

So VEBA has pressed Chrysler to go public, hoping that the market will set the value of their shares in a realm that favors them more than Fiat's offer.

So here's what I make of it:
Chrysler DOES NOT HAVE THE RESOURCES to pay what VEBA wants. So they can't give in. They have no choice but to play the hand or call the bluff. Their hand is garbage, and they know it, and they know VEBA knows they know it.

VEBA is likely hoping that taking the company public will create a hunger for investment in a company that may increase dramatically in value over the next few years. Take the "if only I had invested in Ford in 2007" mentality. The problem with this reasoning is that Ford's (and, by the same token, GM's) recoveries have been based largely on PRODUCT OFFERINGS. Chrysler, unfortunately, does not share their robust position in that respect. Chrysler's products are largely mediocre, niche, or very very terrible with a bit of a Fiat spit-shine to hide the worst flaws. They don't have a Focus or a Fusion or a Cadillac to save them. They have a lot of products that aren't going to carry them anywhere and are merely stepping stones toward the future.

So the connected issue that arises is that Chrysler's only chance to improve its product lineup is by allowing Fiat to improve the company further. This means that anyone wishing to invest in Chrysler NOW, would be working AGAINST the best hope for the company's future. This is bad for Chrysler, bad for Fiat, bad for investors, and thus bad for share value. If the company were to go public now, rather than waiting until it has built a stronger product line, its stock will be very low in value and unlikely to increase in value anytime soon. And to improve, they need Fiat's help. And to help most effectively, Fiat needs to operate unhindered.

What you end up with is a situation where nobody wins in any outcome EXCEPT one.

Here are the outcomes that seem possible to me.

1 (least likely): VEBA calls Marchionne's bluff, takes Chrysler public, and sees the market increase the value of their shares, bringing them more income. VEBA "wins" and Chrysler and Fiat are injured.
2: Marchionne calls VEBA's bluff and VEBA withdraws the IPO out of fear of devalued shares (beyond even what Fiat is offering). Fiat "wins" and VEBA still gets money (US$3bn is a lot more than zero, which is where they started). This seems like the closest thing to not insane on the menu here.
3: Marchionne calls VEBA's bluff but it's NOT a bluff, Chrysler goes public, the stock tanks, and Chrysler, Fiat, AND VEBA are all harmed.
4: Marchionne calls VEBA's bluff, but it's not a bluff, Chrysler goes public, the stock tanks, and Fiat snatches up all the remaining shares for DIRT. VEBA gets less than they were offered, Fiat gains control of Chrysler and the ability to improve it, but the value and bottom-line of both companies is harmed and there's some catchup to play to get back on course with Marchionne's plans of global automotive domination.

These options all suck! Which d!ck decided that greed was more important than a solid amount of money ($3bn!!!)? What ignorant a$$ decided that they'd risk their share value (the income by which they fullfill their fiduciary responsibility) by taking potshots at the SOURCE of that value!? This is an absolute case of the dog biting the hand that feeds it. I'm not necessarily suggesting that Fiat is innocent, but there's plenty of evidence to suggest that they simply don't have the funds to pay what VEBA is demanding and thus, their hands are tied. There's a slim chance of benefit on either side outweighed by a huge sea of risk in the middle. It's tremendously foolish and I feel like, perhaps, there's some kind of responsibility to beneficiaries on one side or another that's being betrayed by such bold face-slapping.

More stuff:
I said from day one (of the restructure) that retaining union obligations would bite GM and Chrysler in the a** down the road. It was not hard to see. This is not even a "unions are bad" or "UAW is bad" issue so much as a recognition that much of the financial burden upon both companies prior to their insolvency was due to union obligations. This was not going to change. And now we're seeing those same burdens returning the moment signs of life have returned. Fortunately, GM managed to regain control from the Treasury and Union in this particular respect early on, due in part to increased share value which can arguably be attributed to a strong product lineup. Which goes back to what I was saying about Chrysler: if you're selling Chrysler 200s, you're going nowhere fast. Being king of the minivans doesn't matter when that market is rapidly evaporating in favor of crossovers you don't build (or can't build because of massive engineering problems with your fancy-a** new 9 speed transmission!!!!).

This is bad timing for a bad call. It might look like there's nowhere to go from up when you're at the bottom. But that's no reason to throw away a sure thing for a chance of somethign nebulous.

[Looneybomber]

I didn't know they were making a 9sp transmission? Seems silly. 7 should be plenty.

"Chrysler would only reiterate that statement above when I contacted them, but they're referring, predominately, to the ZF-designed nine-speed transmission according to people we've spoken with. A "first" for a vehicle in its class, they often remind people. Specifically, the vehicle, when equipped with the 2.4-liter Tigershark engine has trouble engaging 8th and 9th speed properly, sources tell us"

Seriously!? 4banger in a midsized SUV and they wonder why it wont shift into super OD? Maybe a bigger engine and 4.10 rear end?

[Mr. Music]

I've read a lot about the situation and can't agree with you more - an IPO will be bad one way or the other. There is still a chance (and plenty of time) for Fiat and the UAW/VEBA settle and withdraw the IPO request from the SEC since the company just filed for the IPO. That would probably be the best possible outcome for both parties.