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Chrysler May Get an S&P Bump

Posted in Posts, and Syllabus Schedule

Chrysler Group has a credit rating of B+, which is four steps below investment grade, but if its performance continues to improve, Standard & Poors may very well boost that rating. A boosted rating would not mean that Chrysler is free of issues; it is too dependent on the US market and light trucks (as small vehicle sharing with Fiat hasn’t been fully fleshed out yet).

In this week’s rant by Peter M. De Lorenzo, Fiat CEO Sergio Marchionne is denounced harshly as a parasite with the malicious intent to suck a good auto company dry to support a contemptible one. Fiat may buy the remaining shares of Chrysler that it doesn’t already own to in De Lorenzo’s view prop up “a perennial Italian industrial embarrassment,” by giving it access to Chrysler’s cash reserves. In any case, this move would work against Fiat’s credit rating, which though also sub-investment grade is still one level higher than Chrysler’s. A downgrade on a unified Fiat-Chrylser would hurt the entire firm’s ability to raise funds and if Fiat’s position doesn’t improve in Europe and gas prices were to rise in the United States, the company’s position could become even more precarious and may do more harm than if a full merger had not taken place.

One Comment

  1. De Lorenzo maintains his no-holds-barred extremist position. However, the merger of Fiat and Chrysler gives the latter access to product for which it lacks money and time to develop on its own. The new Dodge Dart is a pretty nice vehicle, based on the Giulietta. Engines, transmissions … without Fiat they’d be only light trucks and vulnerable to any hiccup in that part of the US market. Furthermore, Fiat has a much stronger international presence than Chrysler, in eastern Europe and South America, though neither is strong in China (a new venture is assembling / selling the Dodge Dart). Meanwhile, Europe is a disaster and not just for Fiat. My sense is (I don’t have the aphorism quite right) they can stand together, with a bit of luck, but would hang apart.

    May 4, 2013

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