A spokesperson for Chrysler LLC said on Thursday that market rumours of a bankruptcy filing by the privately held carmaker were "without merit," saying the company had ample liquidity.
"The rumor is without merit," Chrysler spokesman Dave Elshoff said. "There is no basis for the rumor."
The concern about Chrysler's liquidity position and the rumor of a Chapter 11 filing drove down prices for the automaker's loans on Thursday, according to Reuters LPC.
Fitch Ratings on Wednesday cut ratings for both Chrysler, now controlled by Cerberus Capital Management LP and its larger rival General Motors Corp, citing the industrywide downturn in sales.
A spokesperson for Cerberus also said there was no truth to the market rumor of a bankruptcy filing.
Liquidity concerns for US automakers have been rising as evidence grows the downturn in sales that began earlier this year accelerated in June in the face of record gas prices and a consumer defection from trucks and SUVs.
Earlier this week, Chrysler drew down a $2bn credit line from Cerberus and Daimler AG, the German carmaker that sold off a roughly 80% stake in Chrysler to Cerberus last year.
Under the terms of that sale, Chrysler had until August to draw on the credit line, which included $1.5bn from Daimler. The credit line pays interest fixed at 7 percentage points above the London interbank rate, Daimler has said.
Chrysler, which lost $1.6bn in 2007, has said it ended the year with $9bn in cash. Its US sales are down 23% so far this year.
The concern about Chrysler's liquidity corresponded with an event for employees at the automakers Auburn Hills, Michigan headquarters intended to honour former chairman Lee Iacocca, who is credited with steering the No. 3 US carmaker from bankruptcy in the early 1980s.
Chrysler marketing chief Deborah Meyer said market concerns were making it harder for all of the automakers.
"Right now in the auto industry, we are seeing a lot of changes. There are a lot of issues in the economy all over and so everyone is wondering not just about Chrysler, but about the auto industry and all aspects," Meyer told Reuters.
Meyer said senior executives were urging Chrysler employees to focus on customers and their feedback as concerns deepen around the sector.
"The whole company is trying to focus on the customers and what their needs are," she said on the sidelines of an event to showcase Chrysler's 2009 line-up. "If we can stay focused on that with all this rolling around, then we will be okay."