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Chrysler's Clock Running Down

With a government deadline just seven days away, Chrysler LLC is running out of time to work out deals with debtholders, its unions and a foreign partner.

A life outside of bankruptcy appears to hinge on whether Chrysler and the U.S. government can get the company's lenders to forgive a large portion of the company's debt in exchange for stock. But both sides are far apart.

"I've said this is the equivalent of a 70-yard field goal," Michael Robinet, vice president of global vehicle forecasts at CSM Worldwide, said of Chrysler meeting all its obligations in the next seven days.

Added Sen. Chris Dodd, D-Conn., of the Senate Banking Committee on CBS' The Early Show Friday, "This is not the option wed like to be hearing about" though it may be "the best option."

Analysts have said all other negotiations hang on that deal. However, The New York Times reported Thursday that the Treasury Department is preparing a Chapter 11 bankruptcy filing for Chrysler, under which the pensions and retiree health care benefits of the United Auto Workers union would be protected. The company would pursue a deal with Italian automaker Fiat SpA while under bankruptcy protection. The lender issue remains unresolved, according to the newspaper.

UAW representatives could not be reached for comment late Thursday.

Chrysler spokeswoman Shawn Morgan said in an e-mail that "it's important to keep all options open.

"Chrysler will continue to work through the end of the month, based on the direction given by the Presidential auto task force, to secure the support of the necessary stakeholders and reach a successful conclusion that the administration and U.S. Treasury deems appropriate," Morgan said.

Chrysler's secured lenders consist of large and small banks and hedge funds that have poured about $6.9 billion into the Auburn Hills, Mich., company. These lenders - about 45 - would be first in line to get paid if the company's assets were liquidated.

Chrysler has been living on $4 billion in government aid since the beginning of the year. The Obama administration has offered another $500 million in working capital to get through April 30, when it has said it would cut off aid.

Including the secured debt and government loans, Chrysler owes about $23.5 billion, including $10.6 billion to a union trust fund that will take over retiree health care costs starting next year. It also owes $1 billion each to its owners, Cerberus Capital Management LP and Daimler AG.

The company is negotiating with the UAW to take equity for part of the trust fund obligation, as well as other concessions.

In Canada, Chrysler was making progress in reaching a new labor agreement with the Canadian Auto Workers union. The country's economic development minister said a new deal could come as close as Thursday, according to the Canadian Press.

The Treasury and Chrysler's lenders spent the week lobbing proposals back and forth. Earlier this week, representatives of Chrysler's debtholders offered to forgive $2.5 billion of the $6.9 billion they are owed, according to people familiar with the discussion. In exchange, they offered to take a 40 percent equity stake in an alliance between Chrysler and Fiat SpA.

The creditors also wanted to be able to elect a board member to the alliance and asked for Fiat to put up $1 billion in cash.

The Treasury swiftly rejected the terms. On Tuesday, the government offered a 5 percent stake in the company in exchange for lenders forgiving a much larger $5.4 billion - or 78 percent - of Chrysler's debt.

Even if Chrysler gets a debtholder deal, CSM's Robinet points out the company faces four other "tremendous hurdles" to surmount: the tie-up with Fiat, a new deal with the UAW, proving the viability of Chrysler Financial and proving it won't need more government aid after the April 30 deadline.

One issue in the debtholder negotiations is whether Fiat will put any cash into the potential alliance. Chrysler's lenders want Fiat to kick in money, said a person familiar with the matter. The person declined to be named because the negotiations remain private.

Fiat, for its part, isn't budging. Chief Executive Sergio Marchionne said Thursday the company still has an "unwavering commitment" to a deal with Chrysler, but said it brings enough to the table, such as new technology, new small-vehicle platforms and new markets for Chrysler products. He added that raising cash in today's market is too difficult.

"I don't know why we would have to pay to get in," Marchionne told investors during a conference call from Turin, Italy. "We have spent a long time talking to people both in the Treasury and with Chrysler ... to explain the value of what we're bringing."

Michigan Sen. Debbie Stabenow on Thursday sent letters to Chrysler's lenders urging them to come to an equitable deal and keep Chrysler out of bankruptcy.

"Hundreds of thousands of American families are waiting anxiously as Chrysler approaches its deadline," Stabenow said.

Even with all the other obstacles, Robinet called the logjam between Chrysler and its lenders "a show-stopper."

He estimates that Chrysler has a roughly 65-percent chance of failing and winding up in bankruptcy proceedings of some sort.

Robinet said whatever happens, Chrysler is sure to be a very different company.

"Whatever emerges after some sort of restructuring ... will definitely not be the exact same company that went in, for sure," he said.

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