A few months ago we asked if Chrysler would be able save itself. At the time, the company was on its knees, having reported a net loss of US$652 million for 2010, mainly due to excessive interest costs related to a US$5,6 billion debt obligation in rescue loans from the US government. Now it would appear that the short answer to our question seems “yes!”.
The company recently announced the repayment of US$7,6 billion in outstanding US and Canadian government loans, more than six years ahead of schedule. The company made payments of US$5,9 billion to the US Treasury and US$1,7 billion to Export Development Canada (EDC) to retire the loans granted when the Chrysler Group, comprising the Chrysler, Jeep and Dodge brands, began operations in June 2009.
“Less than two years ago, we made a commitment to repay the US and Canadian taxpayers in full and we have made good on that promise,” said Sergio Marchionne, CEO of Chrysler and Fiat. “Paying back the loans, along with the financial community’s investment in our refinancing packages, marks another step in Chrysler returning as a competitive force in the global automotive industry.”
The Group confirmed the completion of new financing transactions consisting of a term loan totalling US$3,0 billion, debt securities totalling US$3,2 billion and a revolving credit facility of US$1,3 billion. The new financing will save the company an estimated US$350 million a year in interest expenses and will allow Marchionne the freedom to invest in new products – a key part of the company’s path to recovery.
It’s not all rosy, however. The Chrysler Group will become increasingly integrated with the Fiat business structure and that means that concessions will have to be made by the North American division. The first being the withdrawal of the Chrysler brand from continental Europe – a market in which it never really performed as the company had hoped, but still represents a big (read: emotional) move.
In fact, barring certain markets like Italy, continental Europe hasn’t been a happy hunting ground for Fiat either. The company posted a significant financial loss in 2010 on home soil and recent sales data shows a decline in both new-car sales and market share for 2011. A renewed European strategy is needed and Lancia will form the core of it.
The same could not be said of Chrysler in its home market: the Group managed to increase sales by 17 per cent and, with a spate of new models planned for the three American brands, things are starting to look up for Chrysler. Marchionne’s decision also looks less emotional.
The goal is for the Fiat Group to post sales of 104 billion euros by 2014 (up from 66 billion euros in 2010) and for Lancia to double its sales in Europe by 2014 to 250 000 units. Taking over Chrysler’s distribution network will certainly help – boosting Lancia’s dealership-count to 650 – and combining resources to cut costs.
The Chrysler 300 will be rebadged as the Lancia Thema and we suspect that similar action will be taken with the 200 sedan and the highly-successful Grand Voyager. Chrysler will continue to be sold in the UK and Ireland, as well as other global markets, including South Africa.