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Chrysler expected to stay in business as deal looms

Bankruptcy loomed for Chrysler late Wednesday, but an alliance with Fiat appeared increasingly likely as the U.S. automaker neared completion of terms demanded by the Obama administration to continue getting billions of dollars in taxpayer support.

President Obama said he was “very hopeful” that “a viable Chrysler” would emerge from the continuing government-led restructuring process.

“The details have not yet been finalized so I don’t want to jump the gun, but I’m feeling more optimistic than I was about the possibilities of that getting done,” he said during Wednesday’s news conference.

The developments have eased concerns about Chrysler’s near-term survival, analysts said. But Obama said his administration could still decide to shepherd the company through bankruptcy to prepare it for an alliance with Italian automaker Fiat.

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Such court oversight would allow Chrysler to resolve some outstanding issues, such as closing down struggling dealerships and getting many bondholders to take significantly less than they are owed.

Chrysler also could be forced into bankruptcy court today if no deal can be reached with the balking creditors. Discussions between them, Chrysler and the government were said to be contentious.

Talks involving Fiat, meanwhile, continued leading up to today’s midnight deadline set by Obama. Chrysler is required to restructure, reduce its long-term debt and find a partner to help the struggling automaker return to profitability.

“Chrysler will survive and avoid liquidation,” said a person close to the negotiations, who was not authorized to speak publicly. “Whether that happens in or out of bankruptcy remains uncertain at this point.”

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The deal would stave off immediate collapse for Chrysler by giving it access to at least $6 billion in government money it needs to survive.

But it’s unclear how an alliance with Fiat, which has already tried to sell cars in the U.S. market only to retreat in the mid-1980s, would provide long-term staying power.

Given the hurdles of meeting U.S. safety and environmental regulations, it would take at least two years for Fiat vehicles to appear in domestic showrooms. Even then buyers might not be waiting in line.

“They didn’t pull out of this market for nothing,” Karl Brauer, editor in chief of auto website Edmunds.com, said of Fiat. “When they left, Fiats weren’t seen as the greatest cars on the planet by any means.”

Not to mention that Americans, when they buy cars at all these days, are putting a lower priority on fuel economy as gas prices remain relatively low.

Under the expected deal, Fiat would get access to Chrysler’s dealer network and a 20% stake in the company, basically for nothing and with the prospect of billions more in government money. Fiat’s stake could rise to 35% over time.

That prospect may be too juicy for Fiat Chief Executive Sergio Marchionne to pass up.

“There’s a $6-billon check waiting to be written if these two companies can pretend to make this merger work,” Brauer said.

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Obama on Wednesday said Chrysler’s restructuring plan had made major progress since he rejected it last month, citing “enormous sacrifices” by workers and concessions by some of the major holders of Chrysler’s debt. And he reiterated that he wanted Chrysler and General Motors Corp., which has until June 1 to complete its own restructuring, to be free from government involvement as soon as possible.

“I don’t want to run auto companies,” he said. “I don’t think taxpayers should simply attach an umbilical cord between the U.S. Treasury and the auto companies so that they are constantly getting subsidies. But I do think that helping them restructure at this unique period when . . . the market has essentially gone from 14 million down to 9 million [vehicles sold annually in the U.S.], I don’t think there’s anything inappropriate about that.”

United Auto Workers members voted overwhelmingly Wednesday to ratify a revised contract that would give the union’s retiree healthcare trust a 55% stake in Chrysler.

On Tuesday, Obama’s auto task force reached a preliminary deal with four large banks that hold 70% of Chrysler’s outstanding $6.8 billion in debt. Under the agreement, all of Chrysler’s bondholders would exchange their debt for a total of $2 billion in cash with a Fiat alliance completed.

But about 42 other bondholders still must agree to the deal to avoid a bankruptcy filing. The administration sweetened its offer by $250 million Wednesday.

In an e-mail to employees, Chrysler Chief Executive Robert Nardelli said he was encouraged by progress in the negotiations to keep the company from failing.

But a deal with Fiat would probably end Nardelli’s nearly two-year tenure as CEO. Nardelli told employees this month that the U.S. government and Fiat would appoint a new board of directors for Chrysler, which would appoint a CEO with Fiat’s concurrence.

This wouldn’t be the first time Chrysler has tried a transatlantic marriage. German automaker Daimler, which owns Mercedes-Benz, bought Chrysler in 1998. Despite much talk of synergies in marketing and technology, the partnership never really jelled, and the two parted ways in 2007.

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“I’ve got a lot of respect for the Daimler folks and they couldn’t do it, and Daimler has had a presence in the United States for decades,” said Jim Hossack, senior consultant at AutoPacific in Tustin.

Fiat specializes in small, stylish cars such as the 500, which has been popular in Europe and is seen as a potential competitor to BMW’s Mini in the U.S. Standard transmissions and diesel engines are other areas of expertise. But analysts said those strengths don’t necessarily translate well to U.S. car buyers.

“We’re not into diesel engines and we’re not into manual transmissions and we’re not into small cars,” Hossack said.

Fiat, although in much better shape than when Marchionne took over in 2004, is struggling along with the rest of the world’s automakers.

“The U.S. is one of the toughest markets in the world,” Hossack said. “You’ve got the Japanese and the Koreans, and pretty soon the Chinese and the Indians too. Do you really want to get into this fight?”

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jim.puzzanghera@latimes.com

martin.zimmerman@latimes.com

The Associated Press was used in compiling this report.


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