Richard Engdahl sits down with the Fool's John Rosevear to discuss the auto industry. Now The Motley Fool's senior auto analyst, Rosevear says it all started with his 2009 article, "Talk Me Out of Buying This Stock" (about Ford -- still one of his favorites). Today he offers an in-depth look at Tesla Motors (TSLA 2.23%) and the electric vehicle market, as well as Chrysler's unique situation with Fiat (NASDAQOTH: FIATY).
Now that it's helped pull Chrysler out of trouble, Fiat would love to solidify the partnership into a true merger, but a United Auto Workers trust owns a chunk of the stock. There's been talk of an IPO, but it's hardly a typical stock offering -- and may never happen at all.
A full transcript follows the video.
John Rosevear: Well, Chrysler's making money. Fiat is not making money, and having saved Chrysler it increasingly looks like, if this marriage survives, Chrysler will save Fiat, which is just kind of funny.
But this is why Sergio Marchionne -- who is Italian, but I believe he was born in or grew up in Canada so he speaks fluent North American English and so forth -- he is CEO of both companies, and he would like to merge them, to really merge them, because he'll get more synergies. He can put Chrysler's cash right into Fiat and redeploy it around the world.
If it's running as one company, it's easier to do all that kind of stuff that he would like to do, to advance the Chrysler-Fiat marriage into a more viable global contender. Of course, that marriage is proving somewhat complicated to pull off.
The problem is that Chrysler came out of bankruptcy court essentially with two owners. Fiat owned a chunk, and they had control, and the rest was given to a UAW trust.
The story here is that several years before, as part of a landmark deal between the Detroit automakers and the United Auto Workers, the automakers had for years included that they would pay for private health care for their retirees, for their blue collar retirees.
The pool of retirees was getting bigger and bigger. The pool of profits to pay from was getting smaller and smaller. That was a problem. It was crushing their balance sheets. They wanted these liabilities off of their balance sheets, so the deal they struck was that these trusts were created, that would be managed by the UAW.
They wouldn't give health care anymore to the new retirees, but the folks who had earned it would continue to get it, paid for by these trusts, so the trusts had to be funded. The automakers were all kicking in a certain amount a year for some period of time to fund these trusts.
Well, when GM (GM 5.32%) and Chrysler crashed into bankruptcy court they couldn't continue to fund the trusts so the court, in deciding winners and losers here, one of the winners was decided that it would be these trusts.
Chrysler's UAW VEBA trust -- VEBA, Voluntary Employee Benefit Association, I think -- got a chunk of Chrysler's stock.
Now fast-forward a few years, Chrysler's making money. Fiat wants to continue and build on this partnership. Fiat really wants to buy that stock from the VEBA. The trust really wants to sell that stock because they really, really want to diversify. They're professional investment managers; they want out of this one big investment.
They can't agree on price. The reason they can't agree on price is because the document that was written when this whole deal was set up, on how Fiat could buy it, was vague. There's a complicated valuation formula in there, and the assumptions are poorly worded and vague.
There's a big argument, and the big argument puts them like a billion dollars apart on what is likely to be a $3, $4, or $5 billion transaction, according to reports. This has gone to court. The court has decided part of it in Fiat's favor and said, "Yeah, but the rest has to go to trial." That could be a year or two.
Meanwhile, the trust really wants to sell, Fiat really wants to buy.
Richard Engdahl: So the trust is pushing for an IPO now?
John: The trust has the right to offer up to 25% of Chrysler. It holds something more than that. It holds a little over 40%, I want to say. It was like 41.5%, I think, but they can offer up to 25% of Chrysler through an IPO. That was part of the original deal.
They invoked that, and pushed Chrysler into an IPO, so now we have this situation where Chrysler's CEO wants to talk down the value of the IPO, while the outside shareholder selling wants to talk up the value of the IPO.
What we get is the registration statement; the S-1 that Chrysler filed to initiate the IPO process, that the file with the SEC, is full of all this dire talk about, "If this goes through, Fiat and Chrysler may get divorced, and Chrysler can't survive without Fiat..." It's not what you normally see in an IPO offering.
