DETROIT, Jan 21 (Reuters) – Chrysler LLC’s deal with Fiat (FIA.MI) depends on the U.S. automaker receiving an additional $3 billion emergency loan from the U.S. government, the company’s product development chief said on Wednesday.
“I think that is part of the deal,” Frank Klegon said when asked if the automaker needed the additional $3 billion for the Fiat deal to be completed. “That is part of the process. The expectation is that that is an important part of it.”
Chrysler, which had asked for $7 billion, received $4 billion U.S. emergency loan on Jan. 2. The automaker has said it is counting on getting the rest of the money requested from the government to keep operating.
“I think it is part of the term sheet, we would expect to get the next tranche,” Klegon said.
Chrysler, owned by private equity firm Cerberus Capital Management, announced on Monday an alliance with Fiat that would give the Italian automaker a 35 percent stake in Chrysler in exchange for access to its technology and overseas markets.
Fiat would help Chrysler put together the restructuring plan that Chrysler has to submit to the U.S. government by Feb. 17.
Klegon said discussions had been going on with Fiat on the product side for some time.
“I had no knowledge there was a bigger discussion going on,” he said, adding that the deal does not bar the automaker from other alliances.
Klegon said he did not know if Chrysler would keep all three brands, but ultimately that would not be the product development chief’s call.
“Cerberus are the guys making the deals. They are the ones who at the end of the day negotiate with Fiat,” he said. “We are obviously engaged as the operating side and the product side, but the actual deal is under Cerberus leadership.”
Under the terms of the deal, which has to be approved by the U.S. government, Fiat would not pay cash for its stake in Chrysler.
Chrysler’s sales tumbled 30 percent in 2008, and it ended the year with only $2 billion in cash and reliant on a government bailout to stay afloat.
Chrysler, which owns the Jeep, Dodge and Chrysler brands, is 80.1 percent owned by Cerberus, which paid $7.4 billion for its stake in 2007. Former Chrysler parent Daimler (DAIGn.DE) holds the rest of Chrysler and is looking to sell its stake.
Daimler has written down the value of its remaining 19.9 percent stake in Chrysler to zero.
Fiat has said it could raise its stake beyond the initial 35 percent, but that step would depend on the success of Chrysler’s restructuring.
By Poornima Gupta and David Bailey