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Fiat threatens to walk away from Chrysler

MILAN - Fiat SpA's chief executive, facing a two-week deadline to work out a partnership with Chrysler LLC, warned the troubled U.S. carmaker's unions he would ditch the idea unless they agreed to cut labor costs. In a clear message to U.S. and Canadian unions, Sergio Marchionne told Wednesday's Globe and Mail newspaper a deal on the partnership had only a 50-50 chance of succeeding because of lack of progress in talks with union leaders.

Canadian unions were especially resistant, he said. "Absolutely we are prepared to walk. There is no doubt in my mind," Marchionne said in an interview posted on the Toronto newspaper's website. The Chrysler unions had to agree to match the lower labor costs of plants run by Japanese and German carmakers in the United States and Canada, he said. Under the latest version of the companies' proposed partnership, first announced in January, Fiat would take an initial 20 percent stake in Chrysler in exchange for the technology to make small cars and access to foreign markets.

They are under pressure to reach a deal on the proposal with Chrysler's unions and bondholders before an April 30 deadline set by the U.S. government. Chrysler has been warned by Washington that it would go into bankruptcy if it fails to complete the deal, designed to save the smallest of Detroit's Big Three car makers. It has about USD 7 bln of secured first-lien loans from U.S. private equity firm Cerberus Capital Management's acquisition of the automaker in 2007.

Those lenders have refused efforts to eliminate most if not all of that debt. If a deal is reached, Chrysler stands to get at least USD 6 bln in additional funding from the government. It has received USD 4 billion so far. For Fiat, a deal would give it access to the huge U.S. market and help it gain the scale it says it needs to survive the worst industry crisis in decades. Fiat would bring to North America its popular Cinquecento (500) small car as early as next year, while its premium Alfa Romeo brand would make cars in either Canada or the United States, Marchionne told the newspaper.

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