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TheStreet Open House

Consider Passing on a Chrysler IPO

NEW YORK ( TheStreet) -- There has been a lot of hype surrounding auto stocks this year, but investors should think twice about trying to get shares of Chrysler in an IPO.

This week Chrysler and the United Automobile Workers' Voluntary Employee Beneficiary Association filed to sell shares to the public.

I first became publicly bullish about rival automaker Ford (F) roughly 10 months ago, when shares were trading at about $10. Since then, the stock has appreciated more than 40%, not accounting for dividends.

I'm not saying this to boast. I'm just pointing out the sizable returns enjoyed by Ford investors recently. And my investment was "late" if you think about all the folks who bought shares at $2 or $4.

Even investors buying at $12 and $13 per share have made decent returns in a relatively short period of time.

But the entry points are irrelevant. Investors who have made big money in Ford and in General Motors (GM) may now be looking to book profits while staying in the auto sector.

One method they may be considering is selling stakes in Ford and GM and buying shares of Chrysler, if in fact it carries out an IPO.

But I'd urge caution for one simple reason: Chrysler has an unusual motive for its IPO.

The typical company goes public to raise capital to expand and/or pay down debt.

But that's not why Chrysler is coming back as a public company. Instead, it's trying to solve a conflict between Sergio Marchionne, the CEO of Fiat and Chrysler, and the UAW VEBA.

Let me back up a bit here. In 2008, as the financial crisis was exploding, automakers found themselves in deep trouble. The federal government engineered bailouts of both GM and Chrysler.

In Chrysler's case, it filed for bankruptcy protection in April 2009. Less than two months later, it emerged from Chapter 11 owned by the UAW VEBA, Fiat and the U.S. and Canadian governments. Over time, Fiat bought shares from the other owners, eventually winding up with a majority 58.5% stake in Chrysler.

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