Chrysler News:U.S. $3 billion loan part of Chrysler-Fiat deal

DETROIT (Reuters) – Chrysler LLC's deal with Fiat SpA (FIA.MI) depends on the U.S. automaker receiving an additional $3 billion emergency loan from the U.S. government, the company's product development chief said on Wednesday.

"I think that is part of the deal," Frank Klegon said when asked if the automaker needed the additional $3 billion for the Fiat deal to be completed. "That is part of the process. The expectation is that that is an important part of it."

Chrysler, which had asked for $7 billion, received $4 billion U.S. emergency loan on January 2. The automaker has said it is counting on getting the rest of the money to keep operating.

Klegon believed the $3 billion of additional government aid was part of a term sheet Chrysler had with Fiat on the alliance. Chrysler has been calling the request for additional support a second tranche, or the second half of the original $7 billion of aid it sought late last year.

Chrysler, owned by private equity firm Cerberus Capital Management, announced on Monday an alliance with Fiat that would give the Italian automaker a 35 percent stake in Chrysler in exchange for access to its technology and overseas markets.

Fiat would help Chrysler put together the restructuring plan Chrysler has to submit to the U.S. government by February 17.

Klegon said the U.S. Treasury had been alerted to the deal and he hoped it would approve of the agreement.

Klegon said discussions had been going on with Fiat on the product side for some time.

"I had no knowledge there was a bigger discussion going on," he said, adding the deal does not bar the automaker from other alliances.

Klegon said Chrysler's alliance with Nissan Motor Co Ltd (7201.T) that would provide small cars to Chrysler and large trucks to Nissan was still going forward, as was Chrysler's minivan production for Volkswagen AG (VOWG.DE).

Klegon did not know if Chrysler would keep all three brands, but, ultimately, that would not be the product development chief's call.

"Cerberus are the guys making the deals. They are the ones who at the end of the day negotiate with Fiat," he said. "We are obviously engaged as the operating side and the product side, but the actual deal is under Cerberus leadership."

Under the terms of the deal, which has to be approved by the U.S. government, Fiat would not pay cash for its stake in Chrysler.

Chrysler's sales tumbled 30 percent in 2008 and it ended the year with only $2 billion in cash and reliant on a government bailout to stay afloat.

Chrysler, which owns the Jeep, Dodge and Chrysler brands, is 80.1 percent owned by Cerberus, which paid $7.4 billion for its stake in 2007. Former Chrysler parent Daimler AG (DAIGn.DE) holds the rest of Chrysler and is looking to sell its stake.

Daimler has written down the value of its remaining 19.9 percent stake in Chrysler to zero.

Fiat has said it could raise its stake beyond the initial 35 percent, but that step would depend on the success of Chrysler's restructuring.

(Reporting by Poornima Gupta and David Bailey; Editing by Andre Grenon)

The Big Three Plead to Congress For A Loan

WASHINGTON – Detroit's Big Three automakers pleaded with Congress Tuesday for a $25 billion lifeline to save their once-proud companies from collapse, warning of broader peril for the national economy as well.

It was an uphill battle, with the plan stalled on Capitol Hill amid opposition from Republicans and the Bush administration. But congressional leaders worked behind the scenes in an effort to hammer out a compromise that could speed some aid to the automakers before year's end.

The executives of Chrysler LLC, Ford Motor Co. and General Motors Corp., as well as the United Auto Workers union chief, were pleading their case Tuesday afternoon before the Senate Banking Committee. A House panel was to hear from them Wednesday.

Majority Leader Steny Hoyer said Congress might have to return in December — rather than adjourning for the year this week, as expected — to push through an auto bailout.

"Dealing with the automobile crisis is a pressing need. We are talking about a lot of people ... and a great consequence to our economy," said Hoyer, D-Md. "Obviously we are going to be back here, we think, in December."

The financial situation for the automakers grows more precarious by the day. Cash-strapped GM said it will delay reimbursing its dealers for rebates and other sales incentives and could run out of cash by year's end without government aid.

In the Senate, leaders were focusing on a plan favored by the White House and GOP lawmakers to let the auto industry use a $25 billion loan program created by Congress in September — designed to help the companies develop more fuel-efficient vehicles — to tide them over financially until President-elect Barack Obama takes office.

However, House Speaker Nancy Pelosi, D-Calif., and other senior Democrats, who count environmental groups among their strongest supporters, have vehemently opposed that approach because it would divert federal money that was supposed to go toward the development of vehicles that use less gasoline.

Instead, they want to draw a separate $25 billion for the industry from the $700 billion Wall Street bailout — bringing the government's total aid to the car companies to $50 billion.

A Senate vote on that plan, which would also extend jobless benefits, could come as early as Thursday, but aides in both parties and lobbyists tracking the effort privately acknowledge it doesn't have the support to advance. Treasury Secretary Henry Paulson renewed the administration's opposition on Tuesday.

Even the car companies' strongest supporters conceded Tuesday that changing the terms of the fuel-efficiency loan program might be the only way to secure funding for them with Congress set to depart for the year and the firms in tough financial shape.

"While I believe we have to have retooling going into next year, if in the short run the only way we have to be able to get some immediate help is to take a portion of that, I would very reluctantly do that — but only because I believe President-elect Obama is going to be focused on retooling and on a manufacturing strategy next year," said Sen. Debbie Stabenow, D-Mich.

The White House said the government shouldn't send any more money to the struggling auto industry on top of the already-approved loans.

"We don't think that taxpayers should be asked to throw money at a company that can't prove that it has a long-term path for success," said White House Press Secretary Dana Perino.

Sen. Mitch McConnell, R-Ky., the minority leader, said that redirecting the existing loans was "a sound way to go forward," and that he was working with Democratic Leader Harry Reid of Nevada to set a vote on such a plan.

"The auto industry obviously is very important, very important to my state, but there is a way to do this," said McConnell, who has two Ford plants and a GM plant in his state.

Paulson, testifying on the House side, defended the administration's handling of the massive $700 billion bailout for the financial industry and said it should remain off-limits for Detroit, no matter how badly the automakers need help.
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