But now that Chrysler has a tentative agreement with the United Auto Workers and is closing in on a pact with Italian automaker Fiat Group SpA, Chrysler has cleared nearly all the hurdles ahead of its Thursday deadline. That brings the automaker closer to securing another $6 billion in government aid, keeping it alive and preserving its remaining 54,000 jobs.
"I think this has moved the needle more toward a turnaround," said Mike Boudreau, a director at O'Keefe & Associates, a Bloomfield Hills, Mich.-based turnaround firm. "They still could file for bankruptcy, but they also could go into it with some hope of reorganizing too."
Under a deal reached Tuesday's with four banks, Chrysler's secured creditors would accept $2 billion cash to settle the automaker's $6.9 billion debt, according to the people familiar with the talks. The people spoke on condition of anonymity because the agreement had not been formally announced.
The Treasury Department has been negotiating with a committee of the creditors, including the big banks Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley. The group also includes several smaller banks and some hedge funds. Messages seeking comment were left for representatives of the banks.
Chrysler and the Treasury still need to persuade the rest of the automaker's 46 secured creditors to go along with the new proposal.
Bankruptcy experts have said it may be tough to get them to take a big haircut because their loans are secured by Chrysler's physical assets, things like plants and brands that could provide a better payoff if the company is liquidated.
The banks that are on board hold 70 percent of Chrysler's secured debt, said Brian Johnson, auto analyst for Barclay's Capital, so a Chrysler liquidation now looks like the "least likely route."
"We believe it is increasingly clear that Chrysler will be restructured and avoid liquidation," Johnson wrote in a research report Tuesday.
Boudreau said even if the key deals fall into place, the automaker's complex restructuring still might require filing for bankruptcy protection. There are other issues to address, such as reducing the size of Chrysler's dealer network and finding sources of financing for its customers.
Chrysler cleared a major hurdle over the weekend by reaching a new deal with the UAW that would give the union a 55 percent stake in the company. Chrysler will use equity instead of cash to fund at least 50 percent of its $10.6 billion obligation to a union-run health care trust, and the trust would get a seat on the board.
Factory-level union leaders voted unanimously Monday night to recommend that rank-and-file members approve the concessions. Final approval of the new arrangement could come as early as Wednesday.
"It's important to get some wins under your belt," Boudreau said. "One win can lead to another win. The UAW deal led to the bondholder agreement, which could lead to a deal with Fiat."
A person familiar with the Chrysler-Fiat talks said Tuesday that the Fiat deal is near completion. Negotiators for both automakers and the government were waiting on the debt holders before finishing their talks, said the person, who spoke on condition of anonymity because the talks are ongoing.
Fiat spokesman Gualberto Ranieri declined to comment on the possibility of a deal being near. Italian media reported that the viability of the alliance would be announced Thursday.
"The situation with Chrysler will be decided Thursday evening Italian time, and up until that time we won't have much to say," Fiat Vice Chairman John Elkann said at the close of a meeting of Exor shareholders in Turin, according to the Italian news agencies Apcom and ANSA.
Last week, Fiat CEO Sergio Marchionne affirmed his company's unwavering commitment" to its proposed alliance. He has been traveling back and forth to the United States to work on the deal.
Under the proposed alliance, Fiat is offering its fuel-efficient powertrain technology that would help Chrysler expand into the small car market. In return, it would get a 20 percent stake of the U.S. automaker to start.
A summary of the revised Chrysler-UAW contract says Fiat eventually will own 35 percent of the restructured company.
Chrysler has borrowed $4 billion from the government since the start of the year after the automaker said it wouldn't be able to survive the steep decline in U.S. auto sales without government help.
In March, the government's auto task force rejected Chrysler's restructuring plan and determined that the Auburn Hills, Mich., automaker could not become viable without taking on a partner. The government told the company it must ink a deal with Fiat, gain concessions from its unions and get debt holders to cut the amount owed by the company by April 30.
If Chrysler is successful, the government has promised another $6 billion in loans to help survive until its cost-cutting can take effect and Fiat can bring its small vehicles to the U.S. Without a deal, the government said it would not even provide bankruptcy financing and Chrysler almost certainly would end up in liquidation.
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