Thursday, January 22, 2009

U.S. $3 billion loan part of Chrysler-Fiat deal

DETROIT (Reuters) – Chrysler LLC's deal with Fiat SpA (FIA.MI) depends on the U.S. automaker receiving an additional $3 billion emergency loan from the U.S. government, the company's product development chief said on Wednesday.

"I think that is part of the deal," Frank Klegon said when asked if the automaker needed the additional $3 billion for the Fiat deal to be completed. "That is part of the process. The expectation is that that is an important part of it."

Chrysler, which had asked for $7 billion, received $4 billion U.S. emergency loan on January 2. The automaker has said it is counting on getting the rest of the money to keep operating.

Klegon believed the $3 billion of additional government aid was part of a term sheet Chrysler had with Fiat on the alliance. Chrysler has been calling the request for additional support a second tranche, or the second half of the original $7 billion of aid it sought late last year.

Chrysler, owned by private equity firm Cerberus Capital Management, announced on Monday an alliance with Fiat that would give the Italian automaker a 35 percent stake in Chrysler in exchange for access to its technology and overseas markets.

Fiat would help Chrysler put together the restructuring plan Chrysler has to submit to the U.S. government by February 17.

Klegon said the U.S. Treasury had been alerted to the deal and he hoped it would approve of the agreement.

Klegon said discussions had been going on with Fiat on the product side for some time.

"I had no knowledge there was a bigger discussion going on," he said, adding the deal does not bar the automaker from other alliances.

Klegon said Chrysler's alliance with Nissan Motor Co Ltd (7201.T) that would provide small cars to Chrysler and large trucks to Nissan was still going forward, as was Chrysler's minivan production for Volkswagen AG (VOWG.DE).

Klegon did not know if Chrysler would keep all three brands, but, ultimately, that would not be the product development chief's call.

"Cerberus are the guys making the deals. They are the ones who at the end of the day negotiate with Fiat," he said. "We are obviously engaged as the operating side and the product side, but the actual deal is under Cerberus leadership."

Under the terms of the deal, which has to be approved by the U.S. government, Fiat would not pay cash for its stake in Chrysler.

Chrysler's sales tumbled 30 percent in 2008 and it ended the year with only $2 billion in cash and reliant on a government bailout to stay afloat.

Chrysler, which owns the Jeep, Dodge and Chrysler brands, is 80.1 percent owned by Cerberus, which paid $7.4 billion for its stake in 2007. Former Chrysler parent Daimler AG (DAIGn.DE) holds the rest of Chrysler and is looking to sell its stake.

Daimler has written down the value of its remaining 19.9 percent stake in Chrysler to zero.

Fiat has said it could raise its stake beyond the initial 35 percent, but that step would depend on the success of Chrysler's restructuring.

(Reporting by Poornima Gupta and David Bailey; Editing by Andre Grenon)

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