- The Washington Times - Thursday, April 30, 2009

DETROIT | Italian automaker Fiat Group SpA will sign paperwork to become a partner with Chrysler LLC by Thursday as negotiations continue to keep the struggling automaker alive without filing for bankruptcy protection, according to three people briefed on the deal.

The partnership is the last piece of a huge restructuring plan needed for Chrysler to continue operations as it approaches Thursday’s government deadline to cut labor costs, slash debt and take on a partner.

But it was unclear Wednesday whether the struggling Auburn Hills, Mich., automaker will be able to stay out of bankruptcy court. That, according to sources, hinges on whether some hedge funds that hold 30 percent of its debt agree to forgive most of what they’re owed.

If they don’t agree, Chrysler would file for Chapter 11 bankruptcy and enter a short period of restructuring. If successful, the company would be able to restructure out of court. In both cases, Fiat would be a partner and the government would agree to finance the restructuring rather than cut off Chrysler’s aid, the people said.

“Chrysler will survive and avoid liquidation. Whether that happens in or out of bankruptcy remains uncertain at this point,” said another person briefed on the negotiations.

All of the people spoke on the condition of anonymity because the partnership agreement had not been announced.

One of the sources said Fiat initially would take a 20 percent stake in the company in exchange for its small-car and engine technology. Initially Fiat would not invest any cash, but its technology is worth $8 billion to $10 billion, the person said.

Fiat’s stake could rise to 35 percent, and the company may be willing to invest money at a later date, the person said.

President Obama, speaking at a townhall-style event near St. Louis, said earlier Wednesday that he didn’t know whether a deal to save Chrysler would be completed.

“We’re hoping that you can get a merger where the taxpayers will put in some money to sweeten the deal but, ultimately, the goal is we get out of the business of building cars, and Chrysler goes and starts creating the cars that consumers want,” he said.

Chrysler has borrowed $4 billion from the government since the beginning of the year and could soon be in danger of running out of cash without more help. The government in March rejected Chrysler’s restructuring plan and gave it 30 days to make another effort.

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