Chrysler-Fiat talks intensify

DETROIT Thu Apr 16, 2009 9:46am BST

Sergio Marchionne, CEO of FIAT Group, attends a UBS media briefing in Zurich March 4, 2009. REUTERS/Miro Kuzmanovic

Sergio Marchionne, CEO of FIAT Group, attends a UBS media briefing in Zurich March 4, 2009.

Credit: Reuters/Miro Kuzmanovic

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DETROIT (Reuters) - Fiat Chief Executive Sergio Marchionne turned up the heat on talks with struggling U.S. automaker Chrysler on Wednesday as General Motors confirmed a possible buyer for its Saturn network.

An investor group that includes private equity firm Black Oak Partners LLC and some Saturn dealers has approached GM about buying the assets of the Saturn brand and distribution network.

In late March, the U.S. auto task force rejected the turnaround plans of Chrysler and GM, telling Chrysler it had until April 30 to cement the alliance with Fiat and reach deals to cut its labor costs and debt.

GM (GM.N) was given until the end of May to make much deeper cuts, far quicker than the automaker had envisioned if it wants to hold the $13.4 billion (9.0 billion pounds) of U.S. government emergency loans it received and additional support.

Marchionne said he saw no reason why Fiat and Chrysler could not complete a proposed alliance by the end of April, a target set by the U.S. auto task force that must decide whether to provide more government aid to the Detroit automaker.

"I intend to reach a good conclusion," Marchionne told reporters at a news conference in Zurich, adding that Fiat has other options as well.

Marchionne, in an interview with the Globe and Mail newspaper published on Wednesday, said a deal on the partnership had only a 50-50 chance of succeeding because of lack of progress in talks between Chrysler and union leaders.

The Canadian Auto Workers union said on Wednesday that it plans to resume talks with Chrysler on Monday that have been stalled since the beginning of April. Those talks are crucial to Chrysler completing an alliance with Fiat.

The chief bargainer for the Canadian union also said he believed Chrysler was close to an agreement with the United Auto Workers in the United States. A representative of Chrysler and of the UAW could not be reached immediately for comment.

Chrysler has until the end of April to forge an alliance with Fiat to qualify for long-term U.S. and Canadian government aid. The deal hinges on Chrysler securing concessions from its unions in Canada and the United States as well as an agreement with those who hold Chrysler's first-lien loans.

Canadian Auto Workers President Ken Lewenza said on Wednesday that labor costs should not stand in the way of the alliance.

SATURN TAKER?

GM confirmed discussions with the investor group on Saturn and said it had been in talks with others on the sales of the distribution network and other automakers about supplying vehicles to Saturn. It plans to update Saturn dealers on the progress of the spinoff this week or next week.

The group proposes to turn Saturn and its 440 existing U.S. and Canadian dealerships into a diversified distributorship that would start by sourcing vehicles from GM and eventually offer those from other automakers.

GM has proposed to move forward with its Chevrolet, Cadillac, Buick and GMC brands in North America, either spinning off or closing Saturn along the way with 2011 as the last model year for the brand.

GM shares gained 11 cents, or 6.2 percent, to close at $1.89 on the New York Stock Exchange on Wednesday.

If GM and Chrysler fail to meet the deadlines imposed by the task force, the two automakers could be forced into bankruptcy. GM would be expected to attempt to reorganize and emerge as a smaller company. Chrysler executives have indicated the automaker would be liquidated if it fell into bankruptcy.

GM must cut about $28 billion of unsecured debt more deeply than the two-thirds reduction previously targeted. Chrysler is tasked with eliminating most of a $7 billion first-lien term loan that stems from its split from Daimler AG in 2007.

Those targets have proven to be major obstacles for GM and Chrysler. Chrysler lenders did not present a counteroffer and there were no new talks between GM and its bondholders on Wednesday, people familiar with both talks said.

A steering committee for the Chrysler lenders confirmed on Wednesday that it had been expanded to include Oppenheimer Funds, Perella Weinberg Partners and Stairway Capital. Sources had told Reuters on Tuesday of those additions and of Elliott Management, which was added last week.

Those members are added to the committee which includes Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley.

Automakers are struggling through a deep global downturn in sales driven in part by tight credit conditions and economic slowing in key regions such as North America and Europe.

The stress has filtered down to the thousands of companies that supply components to automakers, leaving many at risk for bankruptcy in coming months. The U.S. Treasury has pledged up to $5 billion of loans to support the supplier sector.

On Wednesday, Noble International Ltd NOBL.O, which supplies structural components to the auto industry, filed for bankruptcy protection, citing a substantial drop in demand from customers and frozen credit markets.

Noble said it had negotiated debtor-in-possession financing with certain customers and hoped to use Chapter 11 protections to pursue sales of its remaining operations.

The global car industry is showing no convincing signs of recovery yet as sluggishness in developed economies has deeply dented demand, Hyundai Motor Group Vice Chairman Lee Hyun-soon said on Wednesday.

Auto markets in China, India and Brazil should outperform, helped by government incentives, growing incomes and faster economic recovery, Lee told Reuters in an interview. The group owns South Korea's top two auto makers: Hyundai Motor Co (005380.KS) and Kia Motors Corp (000270.KS).

(Reporting by Kevin Krolicki, Soyoung Kim, Poornima Gupta, David Bailey, John McCrank, Gilles Castonguay, Lisa Jucca, Cheon Jong-woo, editing by Matthew Lewis, Richard Chang) Keywords: AUTOS/