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Chrysler May Lose Hybrid Competitiveness Without U.S. Loan

Jan. 10 (Bloomberg) -- Chrysler Group LLC risks losing ground against competitors in making hybrid and electric vehicles if it doesn’t receive the U.S. Energy Department loan it applied for, two automotive analysts said.

The agency’s decision on the automaker’s request for a $3.5 billion loan has probably been held up because of a change in ownership that gave Fiat SpA a majority stake last year, said U.S. Senator Debbie Stabenow, a Michigan Democrat who helped set up the loan program.

“We’re continuing to talk,” Energy Secretary Steven Chu told reporters today before touring Chrysler’s display at the North American International Auto Show in Detroit.

The Energy Department has awarded $8.4 billion since 2009 as part of a $25 billion Advanced Technology Vehicles Manufacturing loan program. Recipients include Nissan Motor Co., which sells the Leaf plug-in car; Tesla Motors Inc., with an electric Roadster; and Ford Motor Co., which yesterday showed off two hybrid versions of its Fusion sedan in Detroit.

Chrysler must “be able to offer more” to compete in the realm of hybrid and electric vehicles, Lacey Plache, chief economist for auto researcher, said in an interview at the show. “It really is a critical juncture. What I’m seeing today is everybody’s really trying to cover all their bases.”

Nissan’s $1.4 billion loan helped it accelerate plans to bring Leaf production to the U.S., Tracy Woodard, the automaker’s U.S. government affairs director, said in an interview yesterday.

Electric Fiat

Chrysler plans to introduce an all-electric Fiat 500 in the U.S. around the start of next year, Timothy Kuniskis, head of the Fiat brand for North America, said in an interview. The company also has said it will start selling natural gas-powered vehicles by 2017 and is testing electric- and natural gas- powered pickups.

Chrysler Chief Executive Officer Sergio Marchionne said yesterday that regulators reduced the amount of financing being considered in their latest discussions with the company. The Auburn Hills, Michigan-based automaker is weighing whether to continue pursuing the loan if it’s offered too little, he said.

Chrysler most recently met with the Energy Department on Jan. 6 about the request, said Gualberto Ranieri, a Chrysler spokesman.

Under Review

Chu declined to comment on whether Chrysler will get a loan, the timing of a decision or the amount being discussed.

“Chrysler is one of the manufacturers, as well as Ford and GM, that is rebounding,” Chu said. “I’m happy with that.”

The Advanced Technology Vehicles Manufacturing loan program is under review by the White House following the failure of solar-panel maker Solyndra LLC, which received a loan guarantee from another Energy Department loan program. The agency said last week it was rescinding a conditional commitment to lend OAO Severstal, Russia’s second-largest steelmaker, $730 million to expand high-strength steel production in Dearborn, Michigan.

General Motors Co., which sells the plug-in hybrid Chevrolet Volt, a year ago rescinded its application from the Energy Department’s vehicle program.

Chrysler’s “alternative vehicle work is definitely behind Ford’s and GM’s,” Michael Omotoso, LMC Automotive’s forecaster of hybrid and electric vehicles, said in a telephone interview.

Internal-Combustion Efficiencies

Most consumers aren’t willing to pay a premium for hybrid models, about a decade after they were introduced in the U.S. market, even with oil prices at close to $100 a barrel, said Reid Bigland, president of Chrysler’s Dodge brand. Chrysler’s revival of the Dodge Dart won’t have a hybrid version when it begins production in the second quarter.

The fuel-economy advantage of hybrids “is continuing to shrink because of the efficiencies with the internal combustion engine” through turbochargers and advanced transmissions, Bigland said in an interview. “The pure economics are a tough case.”

Chrysler’s strategy of boosting its fuel economy through improvements to the internal-combustion engine is “smart” for the company, which has paid back the money it borrowed from the U.S. Treasury during the 2009 auto bailout, Omotoso said.

“Sergio Marchionne is very cost-conscious,” Omotoso said of Chrysler’s CEO. “Chrysler’s probably in the weakest financial position of the Big Three” U.S. automakers.

Chrysler can also license hybrid and electric technology from a company such as Tesla, which already has investments from Daimler AG and Toyota Motor Corp., Omotoso said.

Executive Skepticism

Auditor and consultant KPMG LLP said Jan. 5 that 65 percent percent of auto-industry executives it queried for an annual survey said they expect electrified vehicles will account for less than 15 percent of global annual auto sales through 2025.

While that skepticism is “well justified,” automakers still will need to embrace hybrids and electric vehicles to meet U.S. fuel-economy standards, Marchionne said.

Marchionne a year ago called the loans important to the “long-term stability of Chrysler.” He said yesterday that borrowing from the U.S. would probably impair the company’s ability to “refinance itself” for the term of the loans.

Chrysler is generating cash at a faster pace than set in its November 2009 business plan, he said. The company probably generated more than $1 billion in cash flow for 2011, he said.

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