To get federal help, Chrysler has 30 days to do Fiat deal

— -- For Chrysler, the clock is ticking. The Obama administration has told the deeply troubled automaker it has 30 days of financial aid in which to complete its proposed deal for an alliance with Italy's Fiat — or find another partner — and then it's on its own.

That's only the start. Over the same month, Detroit's smallest automaker faces a list of tasks to get the government's financial backing for the deal.

Chrysler also has to chop its debt, pacify the United Auto Workers, solve issues involving its former consumer finance unit and show that after making all those moves, it can make money like it did in the good ol' days when Americans lapped up its minivans and Hemi-powered muscle cars.

Only with that, along with a definite partnership deal, will Chrysler be considered for a second government loan, another $6 billion atop the $4 billion announced in December.

"To me, It's the equivalent of a 70-yard field goal," says Michael Robinet, vice president of consultants CSM Worldwide.

Even if it is found to merit further government support, privately held Chrysler — 80% owned by Cerberus Capital Management and about 20% held by former owner Daimler — is hardly out of the woods.

It still needs to sell cars to consumers who may have doubts about its future. President Obama announced Monday that the government will give its backing to car warranties as a way of reassuring potential buyers, but there is no similar floor being put under resale values. Chryslers, Dodges and Jeeps might be considered less valuable as used cars because customers worry about the company going out of business.

Getting people to buy won't be an easy task when you consider that Chrysler sales are expected to be dismal again for the month when it reports them later this week. For the first two months of the year, Chrysler's sales have slid 49.1% compared with last year.

Chrysler gets less help than GM

As bad as life is for General Motors, it is decidedly worse for Chrysler now that the Obama administration has rejected its turnaround plan as not viable. While the administration seems clear that it will work to prevent GM's disappearance, it seems willing to let Chrysler sink or swim on its own.

The government is giving Chrysler just enough financing to operate for 30 days — rather than 60 days for GM — and Obama pointedly called Chrysler's situation "more challenging," and that his review determined that "Chrysler needs a partner to remain viable."

White House officials said Chrysler didn't get the same deal as GM — which also saw its turnaround plans rejected and lost its CEO as part of the process of the government taking a more direct role — because it is smaller and in much worse shape financially. They pointed out that many auto analysts have questioned whether Chrysler can survive as a stand-alone company.

"You've got different entities moving in different directions," said White House spokesman Robert Gibbs on Monday.

Many car shoppers worry Chrysler will fold

Meanwhile, the proposed Fiat deal just got more complicated. In January when it was announced, the arrangement called for Fiat to get about a one-third stake in Chrysler in return for the right to build vehicles at Chrysler's underutilized U.S. plants.

Memories still linger from the Fiat brand's last foray in the U.S. market, chiefly the 1960s and 1970s. Then, it was known for shapely but not always reliable vehicles: FIAT, it was joked, stood for "Fix It Again, Tony."

Today, Fiat offers much more highly regarded vehicles at the low end, like its retro Fiat 500. But it has just a tiny beachhead in the U.S. market because it owns Ferrari and Maserati.

Consumers interviewed Monday are mixed on the idea of a combined Chrysler and Fiat.

"I think (the combined company) would be a very good company to buy from," says Lin Sowers of Chillicothe, Ohio. Still, Sowers worries that if Chrysler files for bankruptcy, "I doubt that there will be a market for cars made by a company that no longer exists."

And Gene Young of Sioux Falls, S.D., says: "We would likely stick to the Dodge family of vehicles or a Chrysler." They own two: a Dodge Ram pickup and a Dodge Stratus compact. As for the government backing of the warranty, Young adds, "In the case of a new vehicle purchase that would make a difference."

Chrysler officials want Fiat, not only for the financial strength, but because it would bring the smaller, more fuel-efficient models for which Fiat is known in Europe.

Chrysler has little of those to offer now and little in the product pipeline.

Not only would such cars help with sales, they would aid Chrysler in meeting the government's coming more stringent fuel-efficiency standards that will affect all automakers.

One hitch in that plan: The Fiat vehicles are at least two years from joining the Chrysler lineup in the U.S. It will have to find ways to sell its existing vehicles to consumers in the meantime, which could mean more deep discounting.

Chrysler faces tougher deal with Fiat

In rejecting Chrysler's plan Monday, the government also set new conditions for the proposed Fiat deal. It said it nixed the original outlines of a merger deal because as a foreign-owned firm with a stake in Chrysler, Fiat would not be responsible for paying back Chrysler's aid from American taxpayers.

Chrysler must renegotiate the deal to provide greater protection for taxpayers. They also must agree to make more vehicles in the U.S.

This gives Fiat more leverage in negotiation. And it might decide to just let Chrysler slip into bankruptcy court where its core assets might be even cheaper to acquire.

"Fiat has all the cards," says Shelly Lombard of Gimme Credit, which analyzes corporate debt. But she rates chances for a deal as slim because when it comes to Chrysler, "Why would you bother taking on a partnership with this embattled company?"

Chrysler, for its part, issued a statement lauding the government's efforts.

It even issued a clarification when the original statement from CEO Bob Nardelli said, "We are pleased that Chrysler, Fiat and Cerberus have reached agreement on a framework of a global alliance" sounded too much like a deal was final. It is not.

Even if it makes a deal, Chrysler could end up with some form of prepackaged bankruptcy anyway to reduce its debt and further reduce its dealer network, says Aaron Bragman of IHS Global Insight.

Chrysler officials earlier this year said they had succeeded in shrinking their dealer network by 267 to 3,287 by the end of last year.

While a smaller, more profitable dealer network is deemed to help automakers, the dealers themselves often disagree.

"It doesn't cost anything to have a dealer," said Jack Fitzgerald, who has Chrysler dealers among his many brands in the Fitzgerald Auto Malls in Maryland, Pennsylvania and Florida. Chrysler needs somewhere to put its 400,000 in inventory. Cutting dealers doesn't save the automakers, he says. Rather, fix the economy and the automakers themselves would do the trick.

Likewise, small rural dealers say they worry how the consolidation might affect them.

Gary Schoepp, whose Chrysler-Dodge-Jeep dealership in Sidney, Mont., is 50 miles from the closest competitor in the brands, says he would hate to have a bankruptcy judge in New York making decisions on how to bunch together dealers in a spread-out state like Montana.

But don't count Chrysler out

Despite the challenges, experts say Chrysler still can make the Fiat deal work.

"Chrysler has a chance," Bragman says. But, he adds, "I fully expect to see a bankruptcy filing." And he sees the deal with Fiat as far from a sure thing.

But corporate turnaround expert Van Conway thinks the deal will go through.

Fiat knew Chrysler "was a wounded duck," and maybe after government rejection of its go-it-alone option, Fiat "can skin a little more into the deal."

One thing is for certain, he believes a merger is essential if Chrysler is to survive in any form.

"While maybe it was a low probability they could remain a stand-alone, that's now officially gone."

Contributing: Jayne O'Donnell; David Jackson