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July 31, 2008

Chrysler LLC is scrambling to slash costs and line up partnerships with foreign auto makers to shore up its finances amid a painful downturn in sales and a deteriorating outlook for the company, people familiar with the matter said.

In recent weeks, the auto maker has had discussions with Tata Motors about having the company sell and possibly assemble Jeeps in India, these people said.

Separately, Chrysler has had talks about leasing one of its U.S. plants to produce cars for Italy's Fiat SpA, they said. Chrysler has been exploring alliances since it was acquired a year ago by Cerberus Capital Management LP, and has mapped out a deal to make trucks for Nissan Motor Co. Both sets of talks are preliminary and may not lead to deals, these people said.

In the wake of the deep downturn in its U.S. vehicle sales in the last few months, Cerberus has become more concerned about Chrysler's ability to turn around on its own and has stepped up efforts to reach out to foreign car companies, these people said. The talks with Tata and Fiat, news of which were reported by Reuters on Wednesday, are taking place in parallel discussions with other auto companies, they said.

At the same time, Chrysler is tightening spending and rethinking some development projects, people close to Chrysler said. One now under scrutiny is an effort to produce a new, fuel-efficient V6 engine, they said. With gas prices at $4 a gallon and car-buyers flocking to four-cylinder models, Chrysler is reconsidering how many of these so-called Phoenix engines it will need in the future, they said. The company has plans to make the Phoenix engine in three plants.

A Chrysler spokeswoman declined to comment on the company's plans for the Phoenix engine.

At the same time Chrysler has started exploring whether other auto makers would be interested in using part of a Dundee, Mich., plant that makes four-cylinder engines, people familiar with the matter said.

In other cost-cutting moves, Chrysler is preparing to offer early retirement packages for salaried employees, possibly as early as August, people familiar with the matter said. The offers are part of an effort to trim its white-collar work force by 1,000. Chrysler's U.S. vehicle sales fell 22% in the first half of the year, but in recent months the downward trend has worsened. Particularly hard hit are sales of trucks and SUVs -- the vehicles that generate much of Chrysler's revenue.

LINK:Chrysler Slashes Costs, Seeks Partners -
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