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Lost in the media's need to find new superlatives to apply to Ford's (NYSE: F ) turnaround (guilty) and the hype/hand-wringing over General Motors' impending IPO is this intriguing story:
Chrysler isn't dead.
In fact, the smallest member of the Once-Big Three, now a ward of Italy's Fiat, is not only alive, it's showing signs of recovery. That may turn out to be the most remarkable automotive turnaround story of them all, and it's one that offers some food for thought for auto investors.
A profit, sort of
Chrysler reported its third-quarter earnings earlier this week, and it was an intriguing mixed bag: a $239 million "operating profit" that swung to an $84 million loss once interest and taxes were included.
Most of that interest is on loans from the U.S. and Canadian governments. Unlike GM, which "repaid" most of its bailout loans with equity, Chrysler's loans are, well, loans, and they carry fairly steep interest obligations. The U.S. owns a mere 8% of Chrysler.
Chrysler has said it will repay those loans by 2014, and last week, CEO Sergio Marchionne said that the company is actively seeking to refinance those loans ahead of a possible IPO next year. That would get the Feds out of the picture and, with luck, lower the company's ongoing interest obligations.
Slow progress toward relevance
Meanwhile, Chrysler is actually seeing some success in the marketplace, thanks to new products like the Jeep Grand Cherokee that -- to the surprise of many observers, accustomed to also-ran entries from Chrysler -- look to be very good. Automakers ultimately succeed or fail on the strength of their product line, and maintaining a strong product line requires the ability to sustain a high level of investment over time. Chrysler's product development was a low priority during the later stages of its unfortunate marriage to Daimler, and was further starved for investment while the company was owned by private-equity shop Cerberus Capital Management. Cerberus has had success turning around smaller firms like Talecris Biotherapeutics (Nasdaq: TLCR ) and auto supplier Tower International (Nasdaq: TOWR ) , but it was unable (or unwilling) to make the massive investments needed to update Chrysler's product line, particularly once the economy headed south.
So far, though, the company's shotgun marriage to Fiat looks to be a much happier arrangement. The ambitious global product makeover plans announced by Marchionne earlier this year were viewed with skepticism at the time, but so far the companies' efforts appear to be on track. The new Grand Cherokee is a winner, the redesigned Dodge Durango SUV is an enormous improvement on its predecessor inside and out, and the big Charger sedan's refresh looks to be a success as well.
Perhaps more importantly, good smaller cars are coming. Unlike Toyota (NYSE: TM ) , Honda (NYSE: HMC ) , and the other Detroit automakers, Chrysler has always lacked the global scale needed to drive a top-notch small-car program like Ford's European-sourced Focus and Fiesta and the Chevy Cruze, developed in conjunction with GM's Korean arm. This is part of why Chrysler's marriage to small-car specialist Fiat seemed to make sense: Fiat is sending its acclaimed little 500 to the U.S. next year, and a range of Dodge-branded small and midsized cars built on Fiat underpinnings is under development.
But right now, Chrysler's product line still falls short of being competitive, and while sales are growing, they're still barely reaching (and in some months, not reaching) what Marchionne termed "survival" level earlier this year. The company saw a boost in average profit per sale in the third quarter, most likely due to the popularity of the Grand Cherokee, but it'll be a while yet before they have a critical mass of products that can compete on that level.
Meanwhile, Chrysler's still treading water -- getting by on an industry-leading level of fleet sales while it (and its Italian partner) scrambles to make its CEO's grandiose product plans a reality. And what of that IPO? If the company looks to be delivering on the apparent synergies of its partnership with Fiat, and to be delivering on those grandiose product plans, a public -- and thriving -- Chrysler is a real possibility.