Chrysler's Fate Rests With Debtors as Clock Ticks

Including the secured debt and government loans, Chrysler owes about $23.5 billion, including $10.6 billion to a union trust fund that will take over retiree health care costs starting next year. It also owes $1 billion each to its owners, Cerberus Capital Management LP and Daimler AG.

FILE - In this Jan. 11, 2009 file photo, Chrysler Chief Executive Officer Robert Nardelli answers...

FILE - In this Jan. 11, 2009 file photo, Chrysler Chief Executive Officer Robert Nardelli answers questions at the North American International Auto Show in Detroit. Nardelli, in an e-mail sent late Thursday, April 16, 2009, told Chrysler's 54,000 workers that the majority of directors will be independent and not employed by either Fiat or Chrysler. (AP Photo/Gary Malerba, file)

(AP)

The company is negotiating with the UAW to take equity for part of the trust fund obligation, as well as other concessions.

In Canada, Chrysler was making progress in reaching a new labor agreement with the Canadian Auto Workers union. The country's economic development minister said a new deal could come as close as Thursday, according to the Canadian Press.

The Treasury and Chrysler's lenders spent the week lobbing proposals back and forth. Earlier this week, representatives of Chrysler's debtholders offered to forgive $2.5 billion of the $6.9 billion they are owed, according to people familiar with the discussion. In exchange, they offered to take a 40 percent equity stake in an alliance between Chrysler and Fiat SpA.

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The creditors also wanted to be able to elect a board member to the alliance and asked for Fiat to put up $1 billion in cash.

The Treasury swiftly rejected the terms. On Tuesday, the government offered a 5 percent stake in the company in exchange for lenders forgiving a much larger $5.4 billion — or 78 percent — of Chrysler's debt.

Even if Chrysler gets a debtholder deal, CSM's Robinet points out the company faces four other "tremendous hurdles" to surmount: the tie-up with Fiat, a new deal with the UAW, proving the viability of Chrysler Financial and proving it won't need more government aid after the April 30 deadline.

One issue in the debtholder negotiations is whether Fiat will put any cash into the potential alliance. Chrysler's lenders want Fiat to kick in money, said a person familiar with the matter. The person declined to be named because the negotiations remain private.

Fiat, for its part, isn't budging. Chief Executive Sergio Marchionne said Thursday the company still has an "unwavering commitment" to a deal with Chrysler, but said it brings enough to the table, such as new technology, new small-vehicle platforms and new markets for Chrysler products. He added that raising cash in today's market is too difficult.