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Suzuki’s new Swift hatch and sedan in SA

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Chrysler in last push for survival

2009-04-30 13:37

Rome/Washington - Chrysler LLC rushed to clinch a survival deal on Thursday to stave off collapse ahead of a midnight deadline.

The ailing US carmaker is seeking a rescue deal with Fiat that would make the combined Italian/US group the fifth largest carmaker in the world, and a debt forgiveness agreement with its lenders.

The signals about how those discussions are going were mixed.

"I think there is reasonable optimism that (a deal between Fiat and Chrysler) can be closed with an announcement perhaps even by President (Barack) Obama today," Italian Industry Minister Claudio Scajola told Italian television on Thursday.

But one newspaper report said the debt discussions had collapsed as the deadline looms.

Chrysler is among the world car industry's weakest players, but its plight reflects a slump in demand facing an industry whose $2.6 trillion annual revenue is equivalent to the GDP of France and which employs over 9 million people.

US government hopeful

Italian newspaper Il Sole 24 Ore said an announcement could be made at 1600 GMT.

On Wednesday, Obama said concessions by Chrysler's unions and its major bank lenders had made him more hopeful than a month ago that the struggling automaker could be made viable.

But he added it was still not clear if Chrysler would need to seek bankruptcy protection to cement concessions from lenders and move ahead with the planned alliance with Fiat.

The White House has set a series of aggressive targets for Chrysler in order to justify another $6 billion in investment on top of $4 billion in emergency loans the government has extended since the start of the year.

The number three US carmaker has won cost-cutting concessions from its unions in the United States and Canada and is on the brink of closing its deal with Fiat, a person involved in those negotiations told Reuters.

Putting the two car producers together would give the combined group annual sales of some 4.16 million units, making it equal fifth by output with Hyundai Motor Co and behind Toyota, General Motors, Volkswagen and Ford.

Fiat chief executive Sergio Marchionne thinks a carmaker needs to produce at least 5.5 million cars a year to survive.

More muscle for mergers?

Under the terms of the proposed partnership, Fiat would get access to the US market and a minority stake in Chrysler in exchange for the technology to make small cars and access to overseas markets. No cash would change hands.

Scajola said the Chrysler deal would also give the Italian company "good cards" to play in a reorganisation of the European car sector - where speculation has linked it to France's Peugeot and the Opel unit of General Motors.

But in the final stretch before a US-government imposed May 1 deadline for a deal, the focus for Chrysler is on ongoing debt restructuring talks spearheaded by the Obama administration's autos task force and former investment banker Steve Rattner.

In a bid to win over three fund management firms that had spurned an offer to accept $2 billion in cash in exchange for writing off all of Chrysler's $6.9 billion in secured debt, US officials sweetened the terms by throwing in another $250 million, people involved in those discussions said.

About 45 financial institutions hold Chrysler's secured debt. Failure to win their support on debt forgiveness would send the carmaker into bankruptcy, officials have said.

According to a report in the Wall Street Journal citing people familiar with the matter, the talks between the US Treasury Department and lenders collapsed late on Wednesday, meaning bankruptcy for Chrysler was "all but certain".

Fiat and Chrysler are prepared to complete a merger deal by Thursday that would be taken into bankruptcy court as a key element of the restructuring plan if needed, a person with direct knowledge of the preparations said.

Chrysler's race to restructure has played out as a kind of prelude to the slower-moving process under way for its larger rival General Motors Corp.

GM, which has been kept in operation with $15.4 billion of US government funding, has until June 1 to push ahead with its own restructuring which includes plans to cut 40% of its US dealers in less than two years.


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