Page last updated at 12:59 GMT, Thursday, 30 April 2009 13:59 UK

Chrysler approaches key deadline

Dodge Ram trucks sit parked outside a Chrysler factory in Fenton, Missouri.
Chrysler is one of the three troubled US carmakers

Chrysler is just hours away from a deadline that could force it to file for bankruptcy protection.

Continuing efforts to restructure the business focus on persuading its main lenders to write off its debts, but reports say these talks have stalled.

Chrysler is also continuing discussions to form an alliance with Fiat, another key demand of the US government.

President Barack Obama said Chrysler could emerge stronger afterwards if a bankruptcy filing proved necessary.

"It would be a very quick type of bankruptcy and they could continue operating and emerge on the other side in a much stronger position," he said.

"I am actually very hopeful, more hopeful than I was 30 days ago, that we can see a resolution that maintains a viable Chrysler auto company."

Government assistance

The US government has told the carmaker it would be given a further $6bn (£4bn) of vital state loans if the restructuring deal is completed by midnight Eastern Standard Time, 0500 on Friday BST.

Chrysler's annual sales

So far Chrysler has managed to persuade its main union to back the restructuring plan and agree a cost-cutting deal.

The sticking point remains whether the carmaker can persuade its main lenders to accept $2bn in cash in exchange for writing off all of Chrysler's $6.9bn secured debt.

Reports suggest that a number of private equity firms are holding out for more money.

However, some analysts had speculated that Chrysler may prefer to go into bankruptcy projection as a means to give its lenders even less.

US Chapter 11 bankruptcy projection gives a US firm time to rearrange its finances under a court-supervised procedure, while continuing to trade, protected from its creditors.

Chrysler chief executive Bob Nardelli said the firm remained focused on reaching an agreement with all its lenders.

"The agreement of all lenders continues to be a critical factor in our ability to meet government requirements and as such, remains our focus in the successful completion of our restructuring efforts," he added.

Fiat talks

Fiat is hoping to obtain an initial 20% stake in Chrysler, which could subsequently rise to 35% or even 51% as a means to enter the US marketplace.

US bankruptcy protection is called Chapter 11
It gives US businesses time to rearrange their finances while continuing to trade, protected from their creditors

Italy's Finance Minister Claudio Scajola said there was "reasonable optimism" a deal could be agreed on Thursday.

Under the terms of the expected agreement, Fiat will not pay anything for its Chrysler stake, and instead the US company will gain access to Fiat's technology and expertise in making smaller, more fuel-efficient vehicles.

This will enable Chrysler to better diversify away from its over-reliance upon thirsty sports utility vehicles and minivans that have seen their popularity plummet against the backdrop of recession and higher petrol prices.

Fiat and Chrysler first signed an outline agreement back in January.

Chrysler, the smallest of the US "Big Three" carmakers after General Motors (GM) and Ford, secured a $4bn loan from the US government at the start of the year, and has since gained $500m more.

GM has also received multi-billion government loans. While Ford has yet to require any money, the government has agreed to give it financial support, should it be needed.

All three firms have seen sales slump dramatically in their home market as the recession has intensified.

GM has its own deadline of 1 June to restructure the business to receive additional state aid, and avoid needing bankruptcy protection.

Daimler goodbye

Chrysler is owned by private equity firm Cerberus Capital Management, which bought an 80.1% stake from Germany's Daimler for 7.4bn euros ($9.9bn; £6.6bn) in 2007.

Fiat 500
Chrysler would benefit from Fiat's small car expertise

Daimler said earlier this week that it would now be giving up its remaining 19.9% stake in Chrysler.

Under the deal, Daimler said it will also write off Chrysler's outstanding loans, and make three annual payments of $200m in the Chrysler's pension plans.

Daimler said it marked the final separation of the two firms.

The German firm bought Chrysler in 1998 for $38bn.

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