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Published: Thursday, 4/16/2009

Chrysler deal hinges on union cuts, Fiat says

FROM THE BLADE'S NEWS SERVICES

MILAN, Italy - Automaker Fiat Group SpA will walk away from a deal to take a 20 percent stake in Chrysler LLC if the U.S. automaker's unions don't agree to major cost cuts, Fiat CEO Sergio Marchionne said.

Fiat and Chrysler face an April 30 deadline for Fiat to take a stake in the failing U.S. automaker in exchange for small-car technology, but Chrysler first needs concessions from creditors and unions to ink the Fiat deal.

The Canadian Auto Workers union is scheduled to resume negotiations with Chrysler on Monday after a two-week hiatus, CAW President Ken Lewenza said.

If the Fiat alliance isn't finalized by April 30, the U.S. government has threatened not to provide any more aid and let Chrysler be sold off in pieces.

"Absolutely we are prepared to walk. There is no doubt in my mind," Mr. Marchionne told the Toronto Globe and Mail. "We cannot commit to this organization unless we see light at the end of the tunnel."

There is a 50 percent chance the deal will fail, he said, because of lack of progress in labor negotiations in both the United States and Canada.

Fiat may consider buying Chrysler assets if the two don't forge an alliance and the U.S. company declares bankruptcy, Mr. Marchionne said.

Chrysler spokesman Shawn Morgan did not immediately comment. A UAW spokesman declined to comment.

Chrysler Vice Chairman Jim Press has said he is optimistic the company will finish the Fiat talks by the April 30 deadline, but he told dealers this week that the alliance was not a done deal.

Under terms of the nonbinding agreement between Fiat and Chrysler, Fiat is not committing to inject any cash into Chrysler nor would it take on any Chrysler debt.

Industry experts have said the absence of any cash beyond an additional $6 billion from the U.S. government if the Fiat deal goes through still leaves unanswered how Chrysler can survive until the partnership begins to bear fruit. The Obama Administration has supported the deal, praising the Fiat's management for its turnaround of the once-failing Italian automaker and saying Chrysler is not viable as a stand-alone company.

Chrysler would benefit from small-car technology that it lacks, and Mr. Marchionne said Fiat could start selling its successful remake of the iconic Fiat 500 made in North America as soon as next year.

Fiat also plans to relaunch the sporty Alfa Romeo in North America. The new Alfa 149, to be unveiled next year, would be built in North America as a successor to the larger Alfa 159, Mr. Marchionne said.

Chrysler also would launch its own small car based on the 500 platform, Mr. Marchionne said.

"Chrysler needs its own [Fiat 500], meaning a model that is the remaking of Chrysler," he said.



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