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Chrysler in talks with Renault

2009-01-14 06:54

Detroit - Chrysler is in talks to sell key assets to Renault-Nissan and auto supplier Magna as it rushes to restructure after taking $4 billion in US government loans, according to people with knowledge of the discussions.

The string of potential deals would deepen ties between Chrysler LLC and two of its key current partners but could also mark the end of the struggling number three US automaker as an independent venture.

Renault-Nissan and Chrysler, which is owned by Cerberus Capital Management, had some contact about a sale of all or parts of the US automaker last year before the US government stepped in to bail out Chrysler and General Motors Corp in December.

The present round of talks with Renault-Nissan gathered momentum in recent weeks and has included discussions about a deal to sell Chrysler's iconic Jeep brand, according to three people with knowledge of the talks.

Renault-Nissan, an alliance headed by Carlos Ghosn, has been looking to clarify whether a deal to acquire assets from Chrysler would jeopardise the company's access to US government funding, one of those familiar with the talks said.

Representatives of Chrysler, Cerberus, Magna and Nissan had no comment. Renault, which owns a controlling 44% stake in Nissan, could not be immediately reached for comment.

Chrysler Chief Executive Bob Nardelli said this week that he was not preparing the struggling automaker for sale.

Ghosn has repeatedly said he would not consider a deal that would involve spending cash in an uncertain market.

Chrysler has also discussed selling its assembly plant in Belvidere, Illinois, to Canadian auto supplier Magna in exchange for long-term production contracts, according to the three people familiar with the automaker's talks.

In a separate set of deals, Chrysler is also looking to sell the tooling and other assets related to its PT Cruiser model, the three said.

Sen. Bob Corker, a Tennessee Republican who has been one of the auto industry's most outspoken critics in Washington, said on Tuesday that Chrysler could be made more viable by merging with a larger automaker.

"They probably would be better if they were attached to a larger platform," Corker said as he toured the Detroit auto show.

Corker, whose home state includes the North American headquarters of Nissan and one of the Japanese automaker's assembly plants, met on Tuesday with representatives of U.S. automakers, including Chrysler.

Chrysler was given $4 billion in US government loans earlier this month and has said it plans to ask for another $3 billion in funding to head off a cash crisis.

Chrysler's US sales dropped 30% last year and it burned through more than $9 billion in the last six months of the year to end 2008 with around $2 billion in cash.

A fourth person familiar with the situation said Chrysler's position had worsened significantly since initial contacts about a potential sale last year and that Ghosn's opposition to taking on another brand had deepened in the interim.

Deeper ties with partners eyed

Chrysler and Nissan announced an alliance last April that paves the way for Chrysler to have a small car built by Nissan. In exchange, Chrysler would build a new full-sized pickup truck for the Japanese automaker using Nissan's plans in 2011.

Magna also has a long relationship with Chrysler. Magna Steyr, a unit of Magna International, makes minivans and other models for Chrysler in Austria. Magna had been one of the bidders for Chrysler when it was sold by former owner Daimler AG in 2007.

In addition, former Chrysler chief operating officer Wolfgang Bernhard has become an adviser to Magna.

Chrysler's Belvidere plant was extensively retooled in 2005 and is considered one of the automaker's most flexible and valuable assembly plants. It makes the Dodge Caliber, Jeep Compass and Jeep Patriot models.

In a separate deal, Chrysler has been in talks with a pair of Chinese automakers, Chery Automobile and Guangzhou Automobile Industry Group Co, to sell them the PT Cruiser brand and tooling, according to the three sources.

Chery, China's fourth-largest automaker, last month said it had broken off talks with Chrysler over plans to build a car under a Chrysler brand for sale in South America.

Chrysler said last year that it would discontinue the convertible version of the PT Cruiser. It is widely expected to scrap all versions of the PT Cruiser, which are made in Toluca, Mexico, after sales of the 2009 models.

Chrysler has been seeking over $100 million for the tooling and rights to the PT Cruiser brand in a deal that would set one of the Chinese automakers up to make the model in China for that market, the three sources said.

A spokesman for Guangzhou Auto said he was not aware of any Chrysler talks but did not rule out interest in overseas auto assets. Chery could not be immediately reached.

Nissan's credit ratings were put on review for possible downgrade by Moody's, with the rating agency saying it was concerned Nissan's operating performance could be pressured by the worsening outlook for auto markets.

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