Chrysler, Fiat Make Progress

Italian carmaker Fiat took a step closer to clinching a crucial deal with Chrysler after the U.S. carmaker's unions gave their strongest signal yet that they were willing to ratify a tentative deal and Chrysler's chief executive expressed his commitment to qualify for U.S. emergency loans.

Chrysler, which has 8,000 unionized workers in Canada, is under immense pressure to secure a partnership with Fiat after the Obama administration threatened to suspend federal aid for Chrysler unless it secured a deal with the Italian carmaker.

In a first significant step toward meeting the deadline, Chrysler's Canadian and U.S. unions signalled that they were willing to pave the way to an agreement. On Sunday, the Canadian Auto Workers union ratified a new collective agreement with Chrysler to allow layoffs and pay cuts by about C$19 ($15.61) an hour, that would save the automaker about $198.0 million annually, the union said. It also includes the elimination of a third shift at a plant in Ontario, Canada.

Separately, the United Auto Workers union announced that it had also reached a tentative agreement with Chrysler, Fiat and the U.S. government on further concessions on a contract and a healthcare trust agreed with the automaker in 2007.

But while a thumbs-up from unions makes a deal between Chrysler and Fiat more likely, another obstacle is Chrysler's large debt pile. "The bigger unknown at the moment is the banks," said Massimo Vecchio, an analyst with MedioBanca. Lenders to Chrysler are reportedly owed $7.0 billion, but Fiat and the U.S. government are pushing the lenders to forgive $5.5 billion of the debt in exchange for a 5.0% stake in the company, the analyst said.

"It's difficult to say if at the end they will clinch a deal under the current terms. But Fiat will only take Chrysler if Chrysler's debt is negotiated," the analyst said.

Chrysler also signalled its willingness to avoid having to file for bankruptcy protection. The company's chief executive RobertNardelli said that German automaker Daimler was working with Cerberus Capital Management to divest Daimler's 19.9% stake in the struggling U.S. automaker. The top priority was to preserve Chrysler and the entire leadership team was focused on completing the required deals to qualify for emergency U.S. government loans, Nardelli said in a memo obtained by Reuters.

Last week, Sergio Marchionne, Fiat's outspoken chief executive, said that he was confident his company could reach a deal with near-bankrupt Chrysler. "In light of what I know today, I see no reason why it won't happen," Marchionne told reporters in Milan. (See "Can Sergio Marchionne Save Chrysler?")

Still, Fiat could even explore a potential partnership even if Chrysler files for Chapter 11 bankruptcy protection from creditors, a source close to the Italian carmaker told the Associated Press. Chrysler and the U.S. Treasury Department were preparing paperwork for bankruptcy filings, one as a reorganization in Chapter 11 with government funding and the other as a liquidation if no government money is available, sources in the United States have said, the AP reported.

But on Monday Chrysler said it was working "diligently to finalize our alliance with Fiat and restructure our business by the government's April 30 deadline".

UAW focusing on talks with Chrysler

DETROIT – The United Auto Workers union has placed concession talks with General Motors Corp. on the back burner as it tries to reach a deal with Chrysler LLC before an April 30 government deadline, two people briefed on the negotiations said Thursday.

The decision likely means that any deal with Chrysler will set the pattern for concessions granted to GM as both companies try to show the government they have cut costs enough to get more government loans.

The people, who spoke on condition of anonymity because the talks are private, said the union is focusing on Chrysler because its government deadline to cut labor costs and swap debt for equity is just two weeks away.

Chrysler also has to ink an alliance deal with Fiat Group SpA by April 30 to get more government aid. Without further help, Chrysler likely would be auctioned off in pieces under bankruptcy court supervision.

GM's government deadline is June 1, but the Obama administration said it will provide bankruptcy financing if the company can't successfully restructure outside of court.

GM spokeswoman Sherrie Childers Arb and UAW spokeswoman Christine Moroski would not comment on the negotiations. Chrysler spokeswoman Shawn Morgan would not comment beyond a statement that the company has a goal is to reach a conclusion by April 30.

The Canadian Auto Workers union has said that it plans to resume negotiations with Chrysler on Monday after Fiat CEO Sergio Marchionne said the Italian automaker will walk away from the proposed tie-up unless Chrysler's unions agree to major cost cuts.

Canadian Industry Minister Tony Clement said Thursday that the CAW must make significant concessions to ensure Chrysler survives. Without a deal in the next two weeks, the Canadian government will also shut down its support for the troubled automaker, Clement said.

Chrysler, GM and Ford Motor Co. all reached concession deals with the UAW in February to limit overtime, cut lump-sum cash bonuses and eliminate cost-of-living pay increases. The union also agreed to suspend the jobs bank in which laid-off workers are paid most of their wages.

Workers at Ford, which is not receiving government aid, ratified their deal, but the GM and Chrysler agreements were never presented to union members because they got hung up on funding for a union-run trust that will take over retiree health care expenses next year.

Then, the Obama administration said last month that the cuts outlined in GM and Chrysler's viability plans didn't go far enough, and the union would have to give up more. Just how much more has not been stated publicly.

GM has received $13.4 billion in government loans and may need more money this month as it tries to survive the worst auto sales downturn in 27 years. Chrysler has received $4 billion and may also need more funding to stay alive until its deadline.

The government said it will lend Chrysler up to $6 billion more if it completes a deal with Fiat and gains concessions from unions and debtholders.

But creditors that hold $6.9 billion in Chrysler debt — mostly banks and hedge funds — have rejected an offer from the Treasury Department to erase the debt for $1 billion. They are preparing a counteroffer that likely will include more cash and an equity stake in the company.

A committee representing the holders of $28 billion in GM bonds is awaiting an offer from the company that aims to slash its unsecured debt by at least two-thirds.

Associated Press Writer Rob Gillies in Toronto contributed to this report.

Fiat CEO: Concessions or no alliance with Chrysler

Santiago Esparza / The Detroit News

Fiat Group SpA CEO Sergio Marchionne is ready to walk away from a proposed alliance with beleaguered Chrysler LLC if the automaker's union workers do not agree to concessions that would put their pay on the same scale as workers at U.S. plants owned by foreign car companies.

In a story posted today on The Toronto Globe and Mail's Web site, Marchionne said not getting concessions from the UAW and CAW are a breaking point for talks.

"Absolutely we are prepared to walk," he said in the story. "There is no doubt in my mind. We cannot commit to this organization unless we see light at the end of the tunnel.".......More

Chrysler's new deal-Different owners and Marchionne-led management team

Different owners, a new board of directors and maybe a Marchionne-led management team

TURIN, Italy — As Chrysler LLC negotiates an alliance with Fiat S.p.A. that would satisfy the Obama administration, sources say the companies are discussing a revised ownership structure, a new board and possibly a different management team for Chrysler.

Among the options being discussed is a direct role in Chrysler's operations for Fiat CEO Sergio Marchionne — possibly even the chief executive's job.

Sources close to the merger negotiations say that after completing the deal, the plan is to elect a seven-member Chrysler board that would include representatives from Fiat and possibly President Barack Obama's automotive task force.

But the companies face major obstacles in getting the deal done. The ownership of the future Chrysler is still subject to complex negotiations involving Cerberus Capital Management LP, Daimler AG, the UAW and the big banks that hold Chrysler's debt.

A person familiar with the negotiations said the new management structure would divide the roles of CEO and chairman between two executives. The job of Chrysler chairman would be held by an American, the source said.

Since 2007, Chrysler's chairman and CEO jobs have been held by Bob Nardelli, appointed by Cerberus.

On March 30, Obama gave Chrysler and Fiat until the end of April to prove their alliance is workable. The government then would grant Chrysler up to $6 billion in additional loans. Chrysler already has received $4 billion.

Obama impressed

Marchionne (mar-kee-OHN'-nay) — the energetic, chain-smoking architect of Fiat's turnaround — has led the Italian automaker since 2004. In his March 30 speech about the auto industry, Obama praised Marchionne and described Fiat as a company where "the current management team has executed an impressive turnaround."

Another source familiar with the negotiations said Obama's task force may even dictate that Marchionne be directly involved in running Chrysler.

It's unclear whether Marchionne would try to exert hands-on control of Chrysler in the style of Carlos Ghosn, the CEO of Renault and Nissan. But there is evidence that he might try. The 56-year-old executive already spends several days each month in the United States, usually at the offices of Fiat's Case New Holland subsidiary in suburban Chicago.

Every other Friday evening, Marchionne boards a chartered overnight flight, snatching a few hours of sleep and arriving Saturday morning in Chicago. After two days working in America, he catches the red-eye return flight on Sunday.

Marchionne, who speaks accent-free English, holds both Italian and Canadian citizenships and earned university degrees in Toronto and Windsor, Ontario. He spent a decade working in Canada.

Asked about possible changes, Chrysler spokesman Todd Goyer issued a statement: "Chrysler has no management changes to announce. The job of Chrysler's current management team is to get the company on a solid foundation moving forward."

Obstacles remain

Speaking last week at the New York auto show, Chrysler co-President Jim Press said he is optimistic that Fiat and Chrysler can meet the government's requirements and form an alliance.

But he cautioned that Chrysler is preparing for bankruptcy if the alliance does not work out. "We've got to be prepared to take care of the equity and the assets," he said.

Besides the negotiations over the ownership of the future automaker, Chrysler negotiators are in talks with UAW officials about reducing Chrysler's $10.6 billion obligation to the union's health care trust.

The Treasury Department also is negotiating with the major banks holding $6.9 billion in Chrysler debt, according to a Bloomberg News Service report. Bloomberg said the four largest lenders are JPMorgan Chase & Co., Citigroup, Goldman Sachs Group and Morgan Stanley.

Cerberus has offered to give up its stake in Chrysler. Cerberus Chairman Stephen Feinberg is involved in the negotiations. Cerberus also must iron out a dispute in its effort to acquire Daimler's 19.9 percent stake in Chrysler. Cerberus aims to consolidate its ownership as part of the overall plan to restructure the company.

Speaking at a shareholder meeting last week in Berlin, Daimler CEO Dieter Zetsche said Cerberus was making "unacceptable" demands in negotiations to acquire the remainder of Daimler's stake.

The two sides have been wrangling since November over a Cerberus request to acquire Daimler's stake. Daimler sold majority ownership of Chrysler to Cerberus in 2007.

Fiat would own biggest slice of Chrysler under latest scenario proposed by U.S.

Instead of Cerberus Capital Management and Daimler AG holding 80.1% and 19.9%, respectively, of Chrysler LLC, there will be a larger cast.

Under the latest scenario proposed by the U.S. government, Fiat SpA will have the largest block of Chrysler, at 20%. The remaining 80% will be allocated among a variety of secured creditors that include at least five banks and U.S. taxpayers.

Cerberus and Daimler likely will hold much smaller stakes because they still hold loans that helped finance the August 2007 acquisition of the Auburn Hills-based automaker.

Even the UAW could end up owning a piece of the company.

"They are trying to trade debt for equity among the current creditors," said Tom Stallkamp, a former DaimlerChrysler vice chairman and president. He is now a partner in Ripplewood Holdings LLC, a private equity fund. "It's all based on how much of a haircut the debt holders will accept."

Coincidentally, those debt holders include some of the giant banks -- J.P. Morgan Chase, Citicorp, Morgan Stanley and Goldman Sachs -- that auto industry advocates argue have benefitted from a double standard in how they accounted for government loans.

Debt-for-equity talks
There are three levels of Chrysler debt secured by such assets as manufacturing plants, equipment, vehicles, parts and real estate. The first level, valued by Chrysler at $6.9 billion, was borrowed from the banks. The second is $2 billion borrowed from Daimler ($1.5 billion) and Cerberus ($500 million). The third is the $4.3 billion in government loans committed in December and January.

If Chrysler were to file for bankruptcy, the banks would be first in line to sell assets, followed by Cerberus and Daimler, and finally the federal government.

"This is the worst possible time to be selling an auto plant," said Shelly Lombard, a credit analyst with Gimme Credit in New York.

Chrysler, Fiat and President Barack Obama's auto task force are working hard to avoid that outcome. To succeed, they must secure breakthrough agreements with the banks and the UAW. Then, the task force has said it would release up to $6 billion more to fund Chrysler's operations.


Unlike GM, which is dealing primarily with bondholders, Chrysler's debt is owed to banks and the government. Some of the bank loans have been sold to hedge funds and other investors. "It's hard to know who bought what, even with bonds, and it's harder still with bank loans," Lombard said.


One of the banks likely will act as an agent for the hedge funds. Then, the task force leaders, Steven Rattner and Ron Bloom, will negotiate for a settlement that offers the banks a fraction of the loans' face value in exchange for shares in the new Chrysler.

Challenges ahead
Fiat so far has not offered cash and has said it will not assume any current debt to partner with Chrysler. While Chrysler has valued Fiat's vehicles and powertrain technology at $8 billion to $10 billion, that won't likely satisfy the banks.

"Fiat is in many ways a reasonable long-term solution," said Craig Fitzgerald of Plante & Moran. "The big question is will $6 billion more from taxpayers be enough to fund Chrysler's turnaround."

The challenge with the UAW is to find a non-cash method to cover half of $10.6 billion Chrysler owes in 2010 to the Voluntary Employee Beneficiary Association, or VEBA, trust fund. The trust was created to cover health care insurance for UAW retirees.

If Fiat doesn't offer cash or its own stock, Chrysler may offer the union stock in the new company. Such a deal would save $5.3 billion, which could be enough to satisfy Obama's demand for more concessions, and bring the UAW into partnership with banks, taxpayers, Cerberus and Fiat.....More

Chrysler and Fiat must merge or Liquidate

From The Ap
Chrysler and Fiat must merge to get more help for the Auto Task Force

Frustrated administration officials, speaking on condition of anonymity ahead of Obama's announcement, said Chrysler has been given a 30-day window to complete a proposed partnership with Italian automaker Fiat SpA. The government will offer up to $6 billion to the companies if they can negotiate a deal before time runs out. If a Chrysler-Fiat union cannot be completed, Washington plans to walk away, leaving Chrysler destined for a complete sell-off....More

Chrysler and Fiat Must Merge To Get More Help

David Shepardson / Detroit News Washington Bureau

Washington -- The Obama administration will take a much more hands-on role in the restructuring of General Motors Corp. and Chrysler LLC, providing both with short-term aid but insisting on and overseeing immediate dramatic changes.

The administration has set strict timetables for GM and Chrysler to complete restructuring and if required changes are not made is likely to force the automakers into bankruptcy in the coming months.

The companies are likely to go even further in cutting staff and closing plants in order to prove their viability.

The administration's auto task force agreed to provide Chrysler with short-term aid for the next 30 days as the automaker works to complete a tie-up with Itay's Fiat SpA and said it would consider loaning the partnership up to $6 billion if a deal can be finalized.

But it warned that if Chrysler and Fiat cannot come to terms on a partnership, the Auburn Hills automaker would not get any more taxpayer money -- a move that would likely force the company's liquidation....more

Auto Task Force Bailout plan may be stricter than GM, Chrysler expected

By Sharon Silke Carty, USA TODAY
DETROIT — The Treasury Department will announce this week a preliminary plan to help General Motors and Chrysler that sets goals and deadlines that could be more ambitious than the companies themselves have proposed, according to a Capitol Hill staffer briefed on the plan but who wished to remain anonymous because the proposal is not yet public.
Treasury's preliminary plan also could include a bridge loan to Chrysler that's less than the $5 billion the automaker wants, the staffer said. Treasury says details still are being finalized.

A more structured version of the plan will be detailed in April, when additional loan money could become available to the two troubled companies.

The Bush administration in December set a deadline of March 31 for the automakers to prove they would be viable with the help of emergency government loans. But since then, the car market has hit the skids, and both GM and Chrysler have said they need even more money to survive.

GM and Chrysler are operating on a combined $17.4 billion in government loans approved by the Bush administration. The two automakers have asked the Obama administration for another $21.6 billion and say they need it soon.

The president's auto task force is demanding that the car companies get significant concessions first.

GM bondholders are balking at swapping two-thirds of their GM debt for stakes in the company.

Bondholders warned the government this weekend that if they can't strike a deal with the automaker, the car company might be forced into bankruptcy. A group representing bondholders says many are not willing to take stock in place of bonds because they don't believe GM will be survive long enough to make the shares valuable.

That would result in "dire consequences for the company, the tens of thousands of hard-working Americans that GM employs and the economy as a whole," bondholder advisers from investment firm Houlihan Lokey wrote.

And although the United Auto Workers, which represents U.S. hourly workers, has agreed to concessions, the Canadian Auto Workers union hasn't reached an agreement with Chrysler.

Chrysler says that if it cannot get nearly $16 an hour in wage and benefit concessions from the CAW, as well as a guarantee of $2.3 billion in loans from Canadian governments and a break on a tax dispute with Ottawa, it might have to pull out of Canada, the Associated Press reported Monday.

Canada's the source of Chrysler's U.S.-market minivans and line of big sedans that includes the Chrysler 300 and Dodge Charger.

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Nardelli says more aid for financing would boost Chrysler sales

Chrysler CEO Bob Nardelli called Tuesday for a second round of funding for the company's financial arm that would enable sales to customers who otherwise can't qualify for loans.

In an interview with CNBC, Nardelli also said Fiat would assume 35% of Chrysler's debt if the U.S. Treasury Department approves its proposed alliance with the Italian automaker.

Chrysler is operating with $4 billion in loans, and it's seeking $5 billion more.

But in the CNBC interview, Nardelli emphasized the effectiveness of a separate $1.5-billion loan the Treasury made to Chrysler Financial in January. Chrysler used that loan to subsidize zero-percent loans on new vehicles...More

President Barack Obama's Auto Task Force Visits Detroit

WASHINGTON -- The top advisers for President Barack Obama's auto task force will have a chance today to literally kick the tires on Detroit's struggling automakers before deciding how much federal aid they're worth.

The visit, spurred by invitations from the automakers, will cap two weeks of intensive research by the presidential task force into all aspects of the U.S. auto industry as it suffers the worst slump in four decades. After today's trip, the Obama administration has only days to address warnings from General Motors Corp. and Chrysler LLC of imminent bankruptcy and collapse without at least $7 billion in aid by the end of the month -- $5 billion for Chrysler and $2 billion for GM....More

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Obama auto task force to come to Detroit next week

WASHINGTON -- Leaders of President Barack Obama’s auto task force will travel to Detroit next week to meet with industry and labor officials worried about an imminent collapse of several companies absent federal aid.

An administration official said final details of the trip were still being worked out, but the task force visitors will include advisers Steven Rattner and Ron Bloom.


The task force has been conducting a string of meetings over the past two weeks to gather information and assess the depth of the problems facing the industry. General Motors Corp. and Chrysler LLC have said they need a total of $7 billion before the end of the month to avoid bankruptcy, and several suppliers are also on the brink.


Fiat Chief Executive Sergio Marchionne met with Rattner, Bloom and other members of the task force for two and a half hours today to discuss Fiat’s proposed alliance with Chrysler. Fiat has said it would take a 35% stake in Chrysler in return for sharing vehicle designs that could be used for several new Chrysler models.

GM Chrysler Merger part of Chrysler Viability Plan!

Article from The Detroit Free Press-GM Chrysler Merger part of Chrysler Viability Plan!

Chrysler LLC, which is pushing forward on an alliance with Italian automaker Fiat SpA, said it believes a partnership with General Motors Corp. is still the "best option for the U.S. auto industry."

The comments came in Chrysler's restructuring plan filed late Tuesday with the Obama administration.

In the plan, Chrysler, which has already received $4 billion in federal loans, details its restructuring efforts, which include the elimination of 3,000 jobs and three vehicle models, as well as its request for $5 billion more in federal loans.

But Chrysler's plan also points to consolidation among U.S. automakers as a way to sustain the industry.

GM., which received $13.4 billion in federal loans, did not express that sentiment in its restructuring plan filed Tuesday.

Sen. Bob Corker, R-Tenn., who has been a critic of the domestic auto industry, said it's clear that Chrysler's best option is to partner with another automaker.

"Whether it's with Fiat, or whether it makes sense to talk about GM, a merger is their best chance for survival," he said in an interview with the Free Press.

Chrysler hints at a "strong need for industry consolidation, as it notes a merger with GM would create more value than a standalone Chrysler or Fiat alliance," Barclays Capital analyst Brian Johnson said in a note to investors Wednesday.

The Auburn Hills automaker is clear that the savings from a GM-Chrysler partnership would be at least five times more than what a deal with Fiat would offer.

Chrysler has said that discussions about such a partnership, which gained steam last fall before the two automakers approached Congress for aid, were taken off the table by GM.

But as GM and Chrysler approach the government for more money, decisions about the future might not be in their hands alone. Johnson said he expects government aid will continue, "with perhaps the condition of a merger of Chrysler into GM."

However, Corker said it wasn't clear whether a GM-Chrysler pairing would make sense, given the need for GM to cut jobs, plants and brands.

"If you look at what GM is trying to do, which is simplify, does it make sense to add to it?" Corker said. "It's a question that needs to be asked in light of the changes that have occurred."

A merger between GM and Chrysler would generate at least $36 billion in cash and boost operating earnings by $40 billion, Chrysler said.

Savings would come from combining purchasing power, as well as operations for manufacturing, sales and marketing research and development and corporate staffs.

The prospect of a GM-Chrysler merger met criticism across the Midwest, where one study said the combination would cost 35,000 jobs, including as many as 25,000 jobs in Michigan alone.

Promoting a plan that would lead to thousands of job cuts could be a political landmine.

In its plans to the government Tuesday, GM said it plans to cut 47,000 jobs worldwide this year while Chrysler plans 3,000.

And the tally could rise if either automaker is forced to file for Chapter 11 protection.

"The prospect of losing 25,000 jobs in a consolidation between General Motors and Chrysler seemed outrageous in October. Right now, it seems like the best-case scenario," said Patrick Anderson, principal at the East Lansing-based Anderson Economic Group, which studied the potential merger. But Anderson said amid weak vehicle sales, it would be harder to realize all of the cost savings a merger would ordinarily deliver.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said a Chrysler-GM combination is unlikely. But as the market improves, the two companies could team up to reap at least a portion of the cost-savings a merger would have delivered.

"I'm not convinced that that's off the table forever," Cole said.

Contact JEWEL GOPWANI at 313-223-4550 or jgopwani@freepress.com. Free Press Business Writer Justin Hyde contributed.

Creative thinker joins Obama's auto task force

WASHINGTON — Ron Bloom, a key adviser to President Barack Obama’s new auto industry task force, brings a combination of Wall Street savvy, ties to labor unions, and a penchant for out-of-the box solutions to the government-led restructuring of General Motors and Chrysler.

Bloom, 53, a former investment banker who has worked with the United Steelworkers union since 1996, will serve as a top adviser to Treasury Secretary Timothy Geithner as the Obama administration attempts to revamp two corporate giants living off billions in government loans.

General Motors and Chrysler are scheduled to submit road maps to viability today that show how they will repay $17.4 billion in promised government loans. The companies face a March 31 deadline to complete their plans, or else the government can pull the loans, essentially forcing bankruptcy.

Described as cerebral and blunt-talking, Bloom has been credited for taking creative approaches to managing the downsizing of the steel industry and creating a leaner operating structure. He also advised airline pilots in 1994 in the $4.9 billion employee buyout of UAL Corp., the parent company of United Airlines, and he worked with auto parts supplier Dana Holding Corp. to develop a health care trust fund.

“He’s not someone who brings just a conventional cookie-cutter approach. He’s going to force people to think about new ideas,” said Andy Kramer, a Washington attorney who has sat on the opposite side of the bargaining table from Bloom.

Forgoing a single “car czar,” the Obama administration chose to create a multi-agency panel led by Geithner and White House economic aide Lawrence Summers. Advising Geithner, Bloom will have the day-to-day task of working with automakers, their bondholders and labor unions to force concessions, reprising a similar role he played during the consolidation of the steel industry in the last decade.

A Harvard Business School graduate, Bloom served as a vice president with the Wall Street firm Lazard Ltd., focusing on the steel and airline industries. As a top aide to the steelworkers union’s president, he helped resolve a 10-month strike against the Wheeling-Pittsburgh Corp. in 1997, broker an agreement with Goodyear Tire in 2003, and facilitate Esmark’s successful tie-up with Wheeling-Pittsburgh in 2006.

Chrysler official: No Fiat deal closing by Tuesday

DETROIT (AP) — The deal for Italian automaker Fiat SpA to take a 35 percent stake in Chrysler LLC will not be finished until after Chrysler submits a restructuring plan to the federal government, a Chrysler official said Friday.

But the official, who did not want to be identified because the automaker is still working on the plan it must provide to the Treasury Department by Tuesday, said Chrysler will show how it can be viable as an independent company as well as with Fiat taking a stake.

Chrysler is living on $4 billion in government loans. The restructuring plan must show how the automaker will repay the money and become viable. If the government approves the plan, Chrysler will get another $3 billion in loans. The Fiat deal is contingent upon that happening, the official said.

The automakers said last month that they have a nonbinding preliminary deal for Fiat to give its small-car technology to Chrysler in exchange for a 35 percent stake in the struggling automaker. Chrysler's current small and midsize vehicle lineup has not sold well, and it lacks a subcompact model that Fiat could provide.

Chrysler has said that Fiat's vehicle architecture and engine technology are worth billions and would allow Chrysler to get small cars to market five or six years faster than Chrysler could on its own. Fiat also would get access to Chrysler's U.S. distribution network and its emissions control and large-vehicle technology.

The official said Chrysler is still negotiating concessions from debtholders and the United Auto Workers union, even with the deadline to file the viability plan with the government only four days away. Negotiations are to continue into the weekend.

General Motors Corp., which also has received government loans to hold off a bankruptcy filing, is working on its own plan under the same deadline. GM has received $9.4 billion in loans and hopes to get another $4 billion when its plan is approved.

Under the terms of Chrysler's loans, the government set a target for the company to swap much of its debt for equity, which will severely dilute the ownership stake of its current owners, Cerberus Capital Management LP and Daimler AG.

Chrysler will negotiate into the weekend with banks that hold its secured debt to swap part of it for equity. The government also wants Chrysler to convert to equity billions in cash payments it must make to a trust that will start paying retiree health care costs next year. The government also will get equity for its loans.

Those moves, coupled with Fiat's potential 35 percent stake, could leave Cerberus and Daimler with combined ownership of less than 10 percent, according to independent auto industry analyst Erich Merkle.

"My understanding is it would be the banks and the UAW that would own the company when they're done. They would be the larger stakeholders," Merkle said.

Currently, Cerberus, a New York private equity firm, owns 80.1 percent of the struggling Auburn Hills automaker, while Daimler, Chrysler's former owner, holds 19.9 percent. Cerberus is negotiating to take the Daimler stake.

Since Chrysler is a privately held company, it's unclear just how much debt the automaker has, but officials have said it is secured debt held by banks. Chrysler is obligated to pay about $9.9 billion into the union trust under the terms of a national contract deal reached with the UAW in 2007. That payment relieves the company of a $16 billion long-term liability for retiree health care.

The union gained federal court approval for the trust and plans to invest the money so it can pay health care costs for current and future retirees. General Motors Corp. and Ford Motor Co. also agreed to similar trusts in their union contracts.

Chrysler spokeswoman Shawn Morgan would not comment other than to say that the company continues to work with its stakeholders.

Both Chrysler and GM must prove they will be able to repay government loans and achieve "positive net present value." That means that the present value of a company's expected net cash flows exceeds the initial investment that must be made in the company.

Ford has borrowed enough cash privately and says it can avoid government loans. Nearly all automakers are reporting dismal sales in what has turned out to be the worst auto sales climate in 26 years.

Chrysler Vice Chairman Jim Press said Thursday that negotiations with the UAW and banks will continue into the weekend. He said full settlements with the stakeholders don't have to be reached until March 31.

Although a Fiat deal would mean Italian company owns 35 percent of the company, it would still create American jobs, justifying the loans, Press said.

With the Fiat deal gaining momentum, Nissan Motor Co. of Japan said Friday it has suspended plans for Chrysler to produce a Nissan pickup truck and Nissan to produce a small car for Chrysler.

Chrysler Fiat Merger: Fiat races to review Chrysler operations

February 3, 2009 11:00 CET
(Reuters) -- Italian carmaker Fiat is racing to review the operations of Chrysler LLC before Chrysler must meet a U.S. government deadline in two weeks, Fiat CEO Sergio Marchionne told the Wall Street Journal.

Under the terms of the $4 billion in federal loans Chrysler has received, it must present a plan by Feb. 17 showing how it intends to be viable.

Fiat plans to take a 35 percent stake in Chrysler in a deal that will give the Italian carmaker the scale it needs to survive, while Chrysler can expand its product portfolio to include small, less-polluting cars.

Marchionne said Fiat is still analyzing Chrysler's vehicle production operations and then will turn to studying its finances, the newspaper said.

Marchionne reiterated that Fiat will not put any cash into Chrysler but will provide small cars and fuel-efficient engines that would cost Chrysler $3 billion or more to develop.