April 24, 2009 at 12:52 pm

Chrysler talks intensify

Treasury preps for bankruptcy; CAW near deal

Fiat CEO Sergio Marchionne says he is still committed to an alliance with Chrysler, but said Fiat would not inject cash to close the deal. (Fabrizio Costantini / New York Times)

The Treasury Department is making contingency plans for a Chrysler LLC bankruptcy filing next week, but no final decisions have been made as intensive negotiations continue, people familiar with the matter said.

A flurry of discussions during coming days could still produce an out-of-court solution.

In New York, a group representing Chrysler's secured lenders on Thursday was preparing to send to Treasury its latest terms to wipe out much of the $6.9 billion in company debt they carry. The two sides remain far apart in these crucial talks.

The Canadian Auto Workers said Thursday night they were close to a deal on labor concessions with Chrysler, but with the number of details still to be worked out, talks were expected to continue today.

In Italy, Fiat SpA Chief Executive Sergio Marchionne said he was still committed to concluding an alliance with Chrysler, but reiterated that the Italian automaker would not inject cash to close the deal.

In Washington, the Obama administration's auto task force continued intensive negotiations with the United Auto Workers on an agreement to protect the bulk of workers' health care and pension benefits in the event of bankruptcy.

The global effort comes as Chrysler is racing to meet an April 30 deadline to secure concessions from all of its key stakeholders, and finalize a partnership with Fiat, to be eligible for an additional $6 billion in federal loans.

"In a negotiation like this, everything is speculation until there's a deal," an administration official said Thursday. "It should surprise no one that the administration is planning on contingencies, but we remain focused on the goal and engaged with all stakeholders to bring Chrysler and Fiat to a working partnership."

The U.S. and Canadian governments also are preparing a fund of up to $40 billion to finance a restructuring of Chrysler or General Motors Corp. in bankruptcy court, sources said.

Chrysler, in a statement, said, "As we move forward in this process, we believe it's important to keep all options open. Chrysler will continue to work through the end of the month, based on the direction given by the Presidential Auto Task Force, to secure the support of the necessary stakeholders and reach a successful conclusion that the Administration and U.S. Treasury deems appropriate."

Talks are expected to continue into the weekend.

A growing number of Obama administration officials see a bankruptcy filing as all but inevitable for Chrysler, people familiar with the matter said Thursday. Others have put the odds of reaching a deal by month's end at 50-50.

Some congressional aides believe the bankruptcy talk is a tactical move to put more pressure on the banks that hold most of Chrysler's secured debt, led by JP Morgan Chase, Goldman Sachs, Morgan Stanley and Citigroup.

The Treasury Department upped its offer Wednesday to $1.5 billion in new debt plus a maximum of 5 percent of Chrysler's equity once Fiat's stake increases to 35 percent. Fiat would start with 20 percent; it could take a year or two to rise to 35 percent of Chrysler, and it would be contingent on meeting a series of benchmarks involving the sharing of vehicles, engines and technology.

The banks' latest counter-offer had not yet been delivered late Thursday but was expected imminently.

The banks earlier this week said they wanted $4.5 billion in debt, 40 percent of Chrysler's equity, $1 billion in preferred equity and to force Fiat to invest $1 billion in Chrysler.

Marchionne said demands that Fiat put cash into Chrysler are "unjustifiable." He said Fiat might put some cash into Chrysler later on, noting that the company would have an option to increase its holding in the Auburn Hills automaker. "We are going to commit cash at the relevant time, if the situation arises."

Marchionne said he has outlined for Treasury and other officials the value of the products, technology, know-how and access to overseas distribution networks that Fiat was offering in exchange for an equity stake.

Asked by investors whether Fiat might be interested in buying assets from a bankrupt Chrysler, Marchionne said the question was premature. "I like Chrysler in its totality," he said.

Fiat signaled it might explore a deal with GM's European unit Opel as well.

"GM has reached out to several investors for Opel, but we will not comment on any speculations about who is being engaged," GM spokesman Nelson Silveira said.

apriddle@detnews.com">apriddle@detnews.com (313) 222-2504 David Shepardson contributed.

GM's Henderson (Associated Press)