Chrysler/Fiat deal closer

With the US government deadline looming for Chrysler LLC the beleaguered auto maker is looking likely to reach an agreement with Fiat to avoid bankruptcy.

The company managed to strike a last minute deal with the powerful United Auto Workers Union yesterday and is now awaiting approval from its members which should be the last major hurdle it has to overcome.

The deal with the UAW comes after a similar breakthrough with the Canadian unions and an agreement from Daimler to shed its final stake in Chrysler. Reports from the US indicate that should be enough for the proposed alliance between Chrysler and Italian giant Fiat to go ahead by the end of the month.

Daimler agreed to redeem its remaining 19.9 per cent stake in Chrysler from its former merger with the American brand that ended in 2007 with the sale to current owners Cerberus Capital Management.

The German firm will also write off a US$1.5b loan repayment owed by Chrysler and agree to contribute US$200m towards Chrysler's employee pension program each year until 2011.

Arguably more important though was the deal with the UAW which threatened to derail the talks with Fiat. The UAW has agreed to US$10.6b worth of cuts to retiree heath care plans but no reduction in current wages.

The UAW members are due to ratify the deal by Wednesday US time. Last week the CAW (Canadian Auto Workers) ratified its own deal with Chrysler that included concessions to help keep the company viable.

"Chrysler LLC has reached an agreement today with the UAW subject to ratification," says Al Iacobelli, Chief Bargainer and Vice President -- Employee Relations.

"We commend the UAW's leadership for their endless determination and perseverance in reaching this tentative agreement especially during these unprecedented economic circumstances that plague the automotive industry.

"The provisional agreement provides the framework needed to ensure manufacturing competitiveness and helps to meet the guidelines set forth by the US Treasury Department.

"As a result, Chrysler LLC can continue to pursue a partnership with Fiat SpA."

If a deal is struck between the two companies it would see Fiat taking a 20 per cent stake in Chrysler with no cash changing hands. Once the alliance is able to clear its loans to the US government Fiat would then be in a position to take a majority stake in the US brand.

Chrysler is already planning a range of new compact cars built on Fiat platforms and was reportedly showing dealers during meetings at the company headquarters yesterday.

But despite all the good news there is still no guaranteeing Chrysler will avoid bankruptcy. It remains a threat hanging over the firm even if all deals run smoothly. The coming days remain critical to the company's future outcome.

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