Fiat not to assume Chrysler's debt

Chrysler has been looking for a white knight to help it stave off bankruptcy, but Fiat isn't willing to be the one. The Italian automaker yesterday said that it wouldn't assume Chrysler debt - current or future - in exchange for a 35-per cent stake, contradicting Chrysler's CEO Bob Nardelli that it would.

Fiat CEO Sergio Marchionne The statement said the Fiat Group "intends to make absolutely clear that the proposed alliance will not entail the assumption of any current or future indebtedness to Chrysler."

Nardelli had said on the previous day that Fiat would be responsible for 35 per cent of Chrysler's debt to the US government should a proposed alliance go through.

Fiat is discussing trading its small-car and small-engine technology for a 35-per cent stake in Chrysler in a non-cash deal. The agreement would help Chrysler bring badly needed small cars to its showrooms while helping Fiat re-enter the American market with the Alfa Romeo brand and the update of the iconic Fiat 500. (See: Fiat in technology for stock swap deal with Chrysler)

Fiat will not pay cash for the stake in Chrysler, which is 80.1-per cent owned by private equity firm Cerberus Capital Management. Analysts expect Fiat to end up investing something in the partnership in the coming years.

Nardelli earlier this week said that Chrysler would get technology and other items worth $8 billion to $10 billion under the alliance - a contribution Nardelli said would be equal to or greater than the loans Chrysler is seeking from the US government. The partnership would also give Chrysler and Fiat a combined purchasing budget of $80 billion and could preserve 5,000 manufacturing jobs in North America. "It is a perfect fit," Nardelli said.

Chrysler is working to meet the conditions of its $4-billion federal loan and prove it deserves to get the additional $5 billion it has requested. Any deal with Fiat is contingent upon the company gaining US government approval of its viability plan and the release of additional government loan money to Chrysler. Fiat CEO Sergio Marchionne has testified on the deal before Obama administration's auto industry task force. (See: Chrysler receives $4 billion from US treasury)