DETROIT -- Is Chrysler Group, three years removed from bankruptcy, profitable and tapping subprime financing to goose its sales in the United States, still a credit risk?
One of the nation's largest utility companies believes so even though the automaker is armed with about $11.6 billion in cash, gaining U.S. market share and may exceed its $3 billion operating profit target for 2012.
Chrysler filed a complaint this month with Indiana regulators demanding that Duke Energy return a $2.5 million security deposit to cover the automaker's manufacturing operations in Kokomo, Ind.
Duke sought the deposit after Chrysler LLC's bankruptcy reorganization and alliance with Fiat S.p.A. in 2009. The Charlotte, N.C.-based electric utility treated the newly formed Chrysler-Fiat partnership as a new customer and requested the security deposit.
After months of private talks to recover the deposit produced a stalemate, Chrysler has gone public -- calling Duke's practices unreasonable and discriminatory -- and wants the deposit returned with interest.
According to the complaint, Chrysler initially rejected the utility's request for a deposit, claiming it had been consistent in its payments and had a "prepayment arrangement that effectively mitigated any risk to Duke."
It agreed to pay the deposit only after Duke threatened it with disconnect notices, along with late charges, the automaker said in the complaint filed with Indiana regulators.
Chrysler eventually paid the $2.5 million deposit on October 23, 2009.
Duke is the only public utility in North America that is still holding a security deposit from Chrysler, the automaker says.
Chrysler operates four plants with nearly 5,000 workers in the Kokomo, Ind., area, and says it has made 32 consecutive monthly payments to Duke Energy.
The company won't comment beyond the complaint. Duke spokeswoman Angeline Protegere called the utility's policy requiring security deposits from large commercial and industrial users "reasonable," adding it is "based on an assessment of risk."
Yet Chrysler contends Duke hasn't provided objective criteria for determining the automaker's financial risk.
According to Chrysler, Duke won't return the deposit until the following criteria are met:
- 12 consecutive monthly payments within terms of the account.
- Chrysler obtains a Standard & Poor's long-term credit rating of "BB" or better -- it’s at “B+” now, or, a Dunn & Bradstreet composite credit appraisal of "3'' or better.
- Duke determines Chrysler's financial position and acceptability of risk following a review of four recent quarters of audited financial statements.
Chrysler and Duke officials are scheduled to meet in Indianapolis on Aug. 15 to begin hashing it all out. The Indiana Utility Regulatory Commission will ultimately decide the matter.
Not all is lost for Chrysler, though. That deposit is earning interest at 6 percent -- well above your standard Treasury bill or certificate of deposit these days.
Chrysler's operating margins aren't even that high.