Chrysler, the No. 3 U.S. automaker, would be profitable on a net basis if it were not for the interest costs of loans remaining from its bailout, the automaker's chief executive said on Friday.
Sergio Marchionne, who heads both Chrysler and its controlling partner Fiat SpA, also repeated that he expected Chrysler would launch an initial public offering in 2011 to cash out part of the stake held by a union trust fund.
Chrysler is set to report second-quarter results on August 9.
Marchionne, speaking to reporters after a Detroit Chrysler plant visit by U.S. President Barack Obama, said the automaker would have been profitable in the quarter if it had not been for the financing cost on its government loans.
Chrysler took $7 billion in government loans and another $5 billion in bailout and bankruptcy financing. Under the terms of its bailout it is not required to make payments on principal on the $7 billion U.S. Treasury loan until 2011.
The only reason we are not making money on the net is that I pay interest on the borrowings I took from the government and I have money in the bank to cover that debt, he said. Actually, against the Treasury we owe them nothing. We have enough cash to pay it all off.
But you can't run a business without cash, so it's just a function of our capital structure. If we had taken those funds as equity as GM did, we would have been making money, net, right now, Marchionne said.
Marchionne said he expected Chrysler would be able to reduce its reliance on lower-margin sales of vehicles to fleet operators like rental car agencies as the U.S. market recovers.
Hopefully in the month of July we will see the stronger market that is indicative of the rest of the year, he said. We're making money and I'm happy.
A trust fund that pays retiree healthcare expenses aligned with the United Auto Workers union owns 55 percent of Chrysler. Marchionne said a public stock offering to monetize that union stake in the automaker would have to happen but was not likely before 2011.
I have been clear on this, I think we will do it in 2011, he said.
Chrysler's larger rival General Motors Co, majority-owned by the U.S. Treasury, is preparing for its initial public offering and will file for the stock offering in August, people with knowledge of that process have said.
I am waiting for GM to go first -- they are bigger, Marchionne said, when asked by reporters about an IPO.
Marchionne also said it was likely that Chrysler would opt to run its Jefferson North assembly plant visited by Obama on Friday on three shifts.
But he indicated that was not likely before 2011, after Chrysler launches its new Jeep Durango SUV which will also be made at the plant.
Asked about the prospect of a third shift, Marchionne said: It depends on how well the Durango does, which is going to go into production in the fourth quarter this year. I'm hoping.
Chrysler announced in May that it was hiring 1,100 workers for a second shift at the plant. Those workers were hired at the UAW's new second-tier wage of $14 per hour, about half of what experienced line workers had been making before.
(Reporting by David Bailey and Bernie Woodall, editing by Matthew Lewis)