Chrysler Said to Weigh Sale of More Stock
Chrysler Corp., weakest of the Big Three auto makers, is looking for new ways to finance badly needed new-car programs, and there’s speculation that the company may sell more stock.
Raising money has become critical for Chrysler, which has weathered a large drain on its cash position since last year and is facing a bleak earnings outlook.
The company suffers from speculative-level debt ratings, which makes it expensive to borrow. Chrysler has received only a few nibbles on assets for sale, including parts of its Acustar Inc. parts subsidiary and its profitable Chrysler Financial Corp.
Analysts said Monday that selling the assets would be the quickest, least painful way to get money.
Chrysler needs the cash to continue paying for new car and truck models that are crucial for all car makers, which must plan and design years in advance to bring exciting and salable products to the market.
The new models Chrysler is working on include the Grand Cherokee Jeep, code-named ZJ; a mid-size car project code-named LH, and a small-car project called PL.
At the end of March this year, Chrysler had $2.5 billion in cash and marketable securities, down from $3.4 billion a year earlier.
Options under exploration are said to include the Acustar and Chrysler Financial sales, dipping into a newly renegotiated $1.7-billion bank credit line or relinquishing some or all of its half-interest in Diamond-Star Motors Corp. to partner Mitsubishi Motors Corp.
The possibility of a new stock sale was raised publicly Monday when the Wall Street Journal, in its widely read “Heard on the Street” column, said Chrysler was considering issuing more common stock or new preferred stock.
Charles Brady, an automotive stock analyst at Mabon Securities Corp. of New York, suggested that the Journal column may have stemmed from a trial balloon floated by Chrysler itself to see what the market reaction might be.
Chrysler shares fell 25 cents in composite New York Stock Exchange trading Monday to $14.125.
The best thing Chrysler could do, said auto analyst Joseph Phillippi of Shearson Lehman Bros. in New York City, is to show off its yet-to-be-introduced cars and trucks to potential investors.
“I would take 75 to 100 of the top portfolio managers at key accounts, put them on an airplane, fly them out to Detroit for maybe a day-and-a-half ‘dog-and-pony’ show,” Phillippi said Monday.
“Just pull all the stops out and show them what the money is going to be used for. I don’t think they will have any trouble raising it.”
Chrysler tried a version of that last year, taking an exhibit on the road to six American cities to show off a few new-product concepts to the industry press.
Chairman Lee A. Iacocca, long recognized for his marketing skills and charisma, hosted each stop, focusing on how well Dodge, Plymouth, Chrysler, Jeep and Eagle cars and trucks compared to competition from Japan.
New car and truck sales continued their downward trend and were clobbered later in the year by the recession and the Gulf War.
“They didn’t do it right,” Phillippi said of the road show. “LH was not ready; there was no driveable prototype. You’ve now got ZJ available, and come September you will have LHs available.”
Chrysler spokesman Tom Houston said there were no plans for a road show this year, and he declined to comment on the Wall Street Journal column.
Chrysler’s cash-raising options carry significant risks.
Issuing new stock dilutes the value of current stock, making it less attractive as an investment.
Dipping into the bank credit line could further erode Chrysler’s credit rating, making it more expensive to borrow money and more expensive to attract investors to securities it issues.
By selling its stake in Diamond-Star, Chrysler would surrender input into product development. It could also leave Iacocca, a vocal critic of Japan’s auto industry, in the embarrassing position of saying “thank you” to a Japanese competitor.
