Chrysler owners in game of chicken

The revived US car giant has filed papers for a share sale as owners Fiat and United Auto Workers battle over merger plans

On the east side of Detroit, the sprawling Packard Automotive Plant lies in disrepair. Parts of the complex, once among the largest and most-modern facilities of its kind in the world, have become dens for criminals and drug addicts. Other sections have devolved into an easy resource for scrappers looking for metal.

But drive a few miles further east and you will come across a different kind of monument: the Jefferson North Assembly Plant, the only active car factory entirely within the city limits (a second factory, operated by General Motors, straddles the border of Detroit and the neighbouring community of Hamtramck).

Thousands of workers stream into Jefferson everyday to build Jeep Grand Cherokees and Dodge Durangos for Chrysler, an unlikely sight at a facility which back in 2009 seemed headed for decline.

At the time, its owner, Chrysler, was on its knees along with the other "Big Three" American car manufacturers. Eventually, it had to resort first to a government bailout and then a forced marriage with Fiat, a stronger Italian manufacturer.

But that was then: today, following a successful revival that has boosted profits and led to a more than tripling of the workforce at the Jefferson facility, the business has arguably become the stronger member in the partnership as Fiat faces the economic headwinds tormenting companies across Europe.

The role reversal explains the game of chicken currently under way over the question of Chrysler's future, and why it reluctantly filed for an initial public offering (IPO) this week.

The company put in the paperwork after being prodded to do so by a retirement trust fund run by the United Auto Workers (UAW) that owns 41.5 per cent of the business.

The filing came over the objections of Chrysler's chief executive, Sergio Marchionne, who is also the boss of Fiat, and who wants to merge the two businesses and create a car making behemoth that would be the world's seventh-largest car maker.

The combination would create a company with enough scale to compete against rivals such as General Motors and Volkswagen, and also strengthen the relationship between the two businesses, particularly to the benefit of Fiat as its European operations suffer.

A combination would also give Fiat access to the around $12bn (£7.5bn) in cash held by Chrysler.

In the past, Mr Marchionne has portrayed a merger as "inevitable". Earlier this year, he told Associated Press he hoped to achieve more clarity on the deal by the end of 2013, and possibly complete it by the middle of next year.

"If I were to bet, I think there is a probability of more than 50 per cent that it will be done by then," he said.

But the two sides – Fiat and UAW – have been unable to agree on the value of the trust's shares.

UAW reportedly believes the stake to be worth more than $4bn and up to $5bn, a price that Fiat is unwilling to pay. While estimates vary, Fiat is said to be offering more than $1bn less than what the UAW is demanding for its stake.

The impasse led the UAW to exercise an option it retained during the bankruptcy: forcing Chrysler to float on the public markets, which Fiat opposes.

It is unclear how many shares would be sold, or at what price, but the proceeds would go exclusively to the UAW, which wants to demonstrate the value in Chrysler's stock as its sales climb.

Irked by the filing, Fiat has threatened to retreat from Chrysler, with the company saying in the paperwork that the Italian manufacturer had "informed us that it is reconsidering the benefits and costs of further expanding its relationship with us. This could include decisions on capital preservation and allocation, investments and locations of production facilities".

While the issue may yet be resolved through negotiations, the fact that there is an argument over Chrysler's value underscores just how far it has come since the bailout. Between April and June, the business recorded its eighth-consecutive quarter of profits as net income rose by 16 per cent to a shade over $500m. Quarterly revenues climbed by 7 per cent to $18bn.

The gains came against the backdrop of rising sales, as US car manufacturers make a comeback in an environment where interest rates remain lodged at record lows.

Over the second quarter of the year, Chrysler sold nearly 650,000 vehicles – up 10 per cent from 2012. August was the company's best month since 2007, with Chrysler selling 165,552 vehicles, up 12 per cent compared to the same month in 2012.

Among the key drivers of the company's revival has been the Jeep Grand Cherokee, produced at the Jefferson plant in Detroit.

Back on track: Car makers' bailout

In November 2008, Ford, General Motors and Chrysler, the "Big Three" American car makers, were struggling, forcing their respective chief executives to fly to Washington cap in hand seeking taxpayer support from Congress.

On previous occasions, these leaders of industry would have expected a warm reception.

This time, however, they were publicly lambasted on Capitol Hill for arriving in their corporate jets in a sign of just how far their stock – and the stock of their companies – had fallen.

"Couldn't you all have downgraded to first class, or jet-pooled, or something, to get here?" Gary Ackerman, a Democratic lawmaker, asked during Congressional hearing as the bosses pleaded for cash. "It would have at least sent a message that you do get it."

Eventually, in early 2009, following an early lifeline for Chrysler and GM approved by the Bush administration, President Barack Obama announced measures to support the industry. Nikhil kumar

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Arts and Entertainment
The sight of a bucking bronco in the shape of a pink penis was too much for Hollywood actor and gay rights supporter Martin Sheen, prompting him to boycott a scene in the TV series Grace and Frankie
Arts and Entertainment
Lena Headey as Cersei Lannister
TVSPOILER ALERT: It's all coming together as series returns to form
footballShirt then goes on sale on Gumtree
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvName confirmed for third series
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine