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Obama 'hopeful' for deal as Chrysler talks go on

US President Barack Obama said he is "very hopeful" that deals can be worked out to keep Chrysler a viable automaker, as negotiations with debtholders continued late yesterday and Italian automaker Fiat Group SpA was poised to sign on as a Chrysler partner.

Obama said at an evening news conference that he is more hopeful than he was a month ago that Chrysler LLC will stay in business, but he declined to comment on details.

Also Wednesday, a person briefed on the high-stakes Chrysler negotiations said the company will not be sold off in pieces but could still wind up under bankruptcy protection. A restructuring out of bankruptcy also is possible, depending on whether a deal can be reached to reduce Chrysler's US$6.9 billion in secured debt.

The company's fate appeared to be in the hands of about 40 hedge funds that hold about 30 percent of its debt. Although four banks that hold 70 percent of the debt have agreed to erase it for US$2 billion, the hedge funds were holding out for a better deal.

Obama, though, pointed to movement on the debt and concessions from labor unions to say that he was optimistic.

"All of that promises the possibility that you can get a Fiat-Chrysler merger and that you have an ongoing concern," he said. "The details have not yet been finalized, so I don't know to jump the gun. But I am feeling more optimistic than I was about the possibilities of that getting done."

Obama's administration sweetened its offer to the debtholders Wednesday, adding US$250 million with a 6 p.m. deadline. But the debtholders were discussing counteroffers, said US Democratic Rep. Gary Peters, whose Michigan district includes Chrysler's Auburn Hills headquarters.

"You've got high stakes negotiations going on right here at the very last hours," he said.

"It's frustrating that these hedge funds continue to push for every last nickel," Peters said. "Tens of thousands of families' lives are at stake here."

Three people briefed on the talks said the debt issue will be settled either in or out of bankruptcy, and the Fiat partnership would be signed by Thursday as the last piece of a huge restructuring plan needed for Chrysler to continue operations.

The company, which has borrowed US$4 billion from the federal government and needs billions more, faces a Thursday deadline to cut labor costs, slash debt and take on a partner if it wants more aid.

If the government can't reach an agreement with all of Chrysler's debtholders, the company would file for bankruptcy and enter a short period of restructuring, the people said. If there is an agreement, the company would be able to restructure out of court. In both cases, the government would finance the restructuring, the people said.

"Chrysler will survive and avoid liquidation. Whether that happens in or out of bankruptcy remains uncertain at this point," said one of the people. The smaller lenders would have little power to stop the debt from being restructured in bankruptcy court, since the lenders holding the majority of the debt are on board with the plan, the people said.

All of the people spoke on condition of anonymity because the partnership agreement had not been announced. Obama may hold an event at the White House on Thursday should a deal be ready to announce, but nothing has been finalized.

Fiat spokesman Gualberto Ranieri declined to comment on the situation.

Chrysler spokesman Todd Goyer said there's so much speculation "that it would be inappropriate for us to comment prior to any official announcement."

The government in March rejected Chrysler's restructuring plan and gave it 30 days to make another effort, including a tie-up with Fiat.

On Sunday, the Canadian Auto Workers ratified concessions to the automaker, and the United Auto Workers in the US reached a tentative cost-cutting deal that members overwhelmingly ratified Wednesday night.

The UAW said 82 percent of production workers and 80 percent of skilled-trades workers voted for the agreement in balloting that took place at UAW Chrysler locations throughout the US Ninety percent of office and clerical workers and 94 percent of UAW-represented engineering workers voted in favor.

The agreement, which will take effect May 4, meets Treasury requirements for continued loans to Chrysler Corp., and includes commitments from Fiat to manufacture a new small car in one of Chrysler's US facilities and to share key technology with Chrysler.

"This has been a challenging time filled with anxiety and uncertainty for our membership," said UAW President Ron Gettelfinger. "Our members have responded by accepting an agreement that is painful for our active and retired workers, but which helps preserve US manufacturing jobs and gives Chrysler a chance to survive."

Chrysler CEO Robert Nardelli said Wednesday in an e-mail to employees that the automaker was making progress toward meeting the government's restructuring requirements.

He pointed to the deal with debt holders and the UAW deal.

"I'm encouraged by this progress and I want you to know I deeply appreciate the sacrifices made by so many constituents to help us reach the restructuring targets established by the government," Nardelli wrote.

The Fiat partnership means Nardelli could be out of a job. In an April e-mail to employees, he said that if the deal is finalized, Chrysler would be run by a new board appointed by the government and Fiat. The new board, Nardelli wrote, would pick a CEO "with Fiat's concurrence."

Sergio Marchionne, CEO of the Italian automaker, told reporters earlier this month that he could run Chrysler. Obama said Wednesday that Fiat's management "has actually done a good job transforming their industry."

The government clearly was trying to pressure the hedge funds as Chrysler's deadline approached. Its sweetened offer would go back to US$2 billion if not approved by all the lenders.


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