Another Way to Bet on Chrysler

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Over the past few decades, Chrysler has taken on a host of owners and gone through one of the largest corporate bankruptcies in history. But with the automotive market back on its feet after being hit hard during the recession, some investors are ready to invest in Chrysler again, and this way of benefiting from Chrysler's recovery may surprise you.

Not the cars
Most automotive investors are aware that Fiat (NASDAQOTH: FIATY  ) is now the majority owner of Chrysler. So naturally, Fiat has a lot to gain from Chrysler's success. But Fiat also carries the risk of being directly exposed to Chrysler, increasing investment risk. Fiat shares are also not for income investors, since Fiat suspended its dividend.

In 1998, Daimler AG bought out then-publicly traded Chrysler and formed DaimlerChrysler AG with the goal of cost synergies between the two companies. But the combination didn't work out, and Daimler sold the vast majority of its stake to Cerberus Capital Management in 2006.

Most investors know the story from there. Cerberus took a total loss on Chrysler and limped away from the ordeal. However, Cerberus actually played the deal rather smart and is reported to have escaped with 90% of its investment.

How did Cerberus get out with such a small loss on such a mammoth bankruptcy? The answer didn't lie in the car-producing side of Chrysler; it lay in Chrysler Financial, the automotive financing arm. Cerberus managed to keep Chrysler Financial from completely collapsing and eventually sold it for $6.3 billion while keeping an additional $900 million in assets for itself.

Canadian buyer
It's no secret that Canada's banks did much better through the financial crisis than their American counterparts. Their position of pre-recession responsibility led to some investment opportunities during the downturn.

Chrysler Financial was bought by Toronto-Dominion Bank (NYSE: TD  ) (TSX: TD  ) , as the bank sought to grab a piece of the U.S. automotive market, sensing a rebound in the future. For investors today, Toronto-Dominion offers an alternative to an investment in Fiat. It's also the only automotive financing arm of a bankruptcy-restructured U.S. automaker that's publicly traded. General Motors' (NYSE: GM  ) finance arm, once known as GMAC but since renamed Ally Financial, is still privately held, with the U.S. Treasury and Cerberus among the investors. When an IPO of Ally is run, it would be one of the purest plays on directly connected automotive finance, and investors interested in a pure play should watch for this IPO.

But an investment in Toronto-Dominion offers a number of advantages. While it has other factors influencing it beyond the automotive market, these factors allow Toronto-Dominion to pay a dividend of more than 3.5%. The bank's solid grounding in a more stable banking system also reduces the risk of a corporate collapse or severe share dilution.

Automotive bank
For investors interested in a play on Chrysler but not wanting to invest in Fiat, Toronto-Dominion Bank provides an alternative through the bank's acquisition of Chrysler Financial. Topped off with a stable history and a solid dividend, Toronto-Dominion is a blue-chip way to play an automaker with a financially troubled past. Before dismissing any investment in Chrysler as too risky, investors should see whether Toronto-Dominion Bank fits with their investment strategy.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 19, 2013, at 6:22 PM, LouisTewl wrote:

    While this is the kind of off-the-beaten-track intel that should/could distinguish TMF from other financial intelligence websites, and presents and idea certainly worth considering, I notice you don't include Ford Credit in your historical analysis--further, with the exception of your 2-3 interviews about the CURRENT state of the Fiat/Chrysler/VEBA deal, you won't say anything about FUTURE potential developments and/or outcomes of the resolution of the FCV deal, private OR public.

    Suggesting an investment in TD as a way to play the FCV deal? PLEASE-I (and/or, presumably, anyone else at your site) don't need TMF to tell me about TDB.

    Instead, why don't you take your fellow Fool Grosevenor (sp) out to the woodshed and get us some useful intel on the FCV deal? REALLY--we can ALL read the situation backwards--how about we start looking forward? As I told JG, "where was the intel on the F/C 1.5B investment in Mexico, and the ramifications for the FCV deal AND F/C's plans for China?

    You guys come out with these 'spot' stories, which, while discussion-provoking, don't, in the majority, qualify as in-depth analysis.

    Either you all don't really know what's going on, or you are so ham-strung by liability agreements you signed with TMF that you might as well be working for Charles Schwab--it's a sad state of affairs--I'm not hatin', I'm just sayin'.

  • Report this Comment On October 19, 2013, at 6:35 PM, LouisTewl wrote:

    (con't) For example-$1B upgrade in mexico to produce commercial Ram vans--what's the new/increased market for those?

    $250m to ramp up the production line at the Saltillo plant to produce the 'Tigershark' engines--what are they, what's their application and market(s), where have they been being mfg'd to-date, and what (new) market is F/C addressing in ramping up NOW?

    COME ON. JG sarts every article with a 'disclosure' that he bought Ford & GM at the bottom and still owns them, and-what? we're all supposed to genuflect before reading his piece?

    If your claim to fame as a 'Global' auto industry analyst is that you bought (2) legacy American auto companies at flatline, well, you better have something more to offer the investing public in forward-looking intel, or, in my humble opinion, you ought to take the word 'Global' out of your title. I mean REALLY.

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