Chrysler's debt, labor could derail Fiat deal, bailout funds

DETROIT -- With the clock ticking to sign a merger deal with Italian automaker Fiat, Chrysler is struggling to shed a majority of its debt by getting the holders to take shares in trade.

It's a stumbling block that could delay or derail the proposed partnership, which the government has ordered completed by May 1. If Chrysler can't meet that deadline, the government has said, it will get no more bailout money. That likely would push it into filing Chapter 11.

Standard & Poor's last week cut its ratings on Chrysler and said it doesn't believe it would survive bankruptcy.

"We believe that if the company filed for Chapter 11 bankruptcy protection, many of its assets and operations would be sold in discrete transactions over time, while other segments may be closed," said Standard & Poor's recovery analyst Greg Maddock.

Adding another obstacle, Fiat CEO Sergio Marchionne said in an interview published Wednesday that Fiat will walk away from a deal if the U.S. automaker's unions don't agree to major cost cuts.

Chrysler has asked for $9 billion in loans to help weather the collapse of car sales that started in the fall. It has received $4 billion and is getting enough working capital to make it through April. President Obama said last month that he doesn't believe Chrysler can become viable as a stand-alone company. He gave it 30 days to find a partner, saying only then would it be eligible for $6 billion in additional loans to make a deal work.

The debt holders have been meeting with the president's automotive task force in the past few days, attempting to hammer out a deal.