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Chrysler prepares for future with, without Fiat

Chrysler LLC's product development chief said Wednesday that the automaker is preparing two plans to show the U.S. government how it will become viable.
/ Source: The Associated Press

Chrysler LLC's product development chief said Wednesday that the automaker is preparing two plans to show the U.S. government how it will become viable and repay billions in federal loans: one as a stand-alone company and the other joined with Italian automaker Fiat SpA.

Frank Klegon, a Chrysler executive vice president, said in an interview at the Chicago Auto Show that as the company races against a Tuesday deadline to submit its viability plan, another team is working with Fiat on product sharing, getting into details of what products each company might be build and sell.

Chrysler is surviving on a $4 billion government loan, and it is hoping for $3 billion more after it shows the Treasury Department it can repay the loans and generate positive cash flow.

Under an agreement reached in January, Fiat would take a 35 percent stake in Chrysler in exchange for its small-car technology, but the deal hinges on Chrysler getting the remaining $3 billion.

"We will be presenting what a Chrysler plan looks like and how a Chrysler-Fiat plan is augmented to that," he said, adding that both plans will show the government that Chrysler can survive.

Several industry analysts have said Chrysler cannot make it through the year as a stand-alone company, largely because of depressed U.S. auto sales.

Chrysler is working on gaining concessions from its bondholder by swapping debt for equity, and it also is in talks with the United Auto Workers union to make its labor costs competitive with Japanese automakers with U.S. factories.

Chrysler officials told dealers that part of the viability plan was for them to help the company generate cash by ordering 78,000 vehicles in the month of February. Vice Chairman Jim Press told dealers in a conference call last week that they needed to make the orders by Monday, but the company was short by around 10,000 vehicles.

Klegon said Monday was not a hard deadline, and the company is still working toward its goals.

"I think they're out there still pressing the flesh so to speak, and working on it. We have a little leeway, obviously, to manage our volume," he said.

Falling a small amount short of the goal will not make or break the viability plan, Klegon said, but it could mean further expense cuts if revenue targets are not reached.

"At the end of the day, if you don't achieve your revenue targets, you have to look for other places on the cost side to offset that," Klegon said. "So we'd much rather make it on the revenue side and get the market and the financial liquidity going."

Klegon would not say exactly which products Fiat and Chrysler have talked about sharing, although the company has stated in the past it's interested in Fiat's small engines and compact and subcompact cars. They could be built in the U.S. using excess Chrysler factory capacity. Klegon said Fiat also is interested in getting access to Chrysler's truck products, emissions control technology and its new fuel-efficient Phoenix V-6 engine.

"Nothing's settled by product, by brand or any of that kind of stuff yet," he said.

Before the Fiat deal emerged, Chrysler had a pact with Nissan Motor Co. to build a Chrysler-badged subcompact called the Hornet that Chrysler would distribute in the U.S. While Klegon conceded the Nissan deal would duplicate some of Fiat's products, he said Chrysler is still working with the Japanese automaker.

He said no contract has been signed with Nissan.

"We are still working through that. That stuff is still active," he said, adding that he hopes the Nissan deal goes through so Chrysler has more options for products.

Chrysler, with almost no presence in overseas markets, would benefit greatly from Fiat's worldwide distribution network, while Fiat could use Chrysler's dealer network to sell products in the U.S.

Aaron Bragman, an analyst for the consulting firm IHS Global Insight in Troy, Mich., said the only way Chrysler can prove its viability alone is to cut itself down to its best products, minivans, pickup trucks, SUVs and large cars.

"I don't understand how they can have a viability plan that does not include a foreign partner," he said Wednesday, predicting a tough sell to the government.

"This is going to be the ultimate sales job, quite frankly. They've got their work cut out for them."