The US Treasury Department's auto task force has confirmed today that striking a deal with Fiat represents Chrysler's last chance of survival although it believes that there is a huge amount of work to be done to turn this option a practical proposition. The auto task force has criticised the standalone viability plan submitted on February 17 as being to overly optimistic and not able to stand up to scrutiny.

In a live television address today US President Obama threw his support behind an alliance with Fiat as being Chrysler's best chance at survival and said he would offer aid, but with a number of strings attached. The loans on offer however could now amount to up to US$6 billion - provided Chrysler and Fiat can show that a viable recovery scenario can be enacted. They now have 30 days to demonstrate if they have this capability; if they fail Chrysler will be cut adrift. Fiat investors showed much concern about the deal and shares in the Italian carmaker lost 9.35 percent to 4.777 euros at close of trading on the Milan bourse today.

The terms of the Fiat-Chrysler alliance are likely to change. In the proposal outlined in January Fiat was to get a 35 percent stake in Chrysler in exchange for supplying its technology, a contribution valued recently at US$8-10 billion by Chrysler CEO Bob Nardelli. This stake in turn could be raised to 55 percent at a later date. However this initial Fiat stake is likely to fall to around 20 percent initially, later rising to 35 percent depending on the successful repayment of the loans. The Obama administration won't tolerate Fiat taking control of Chrysler while loans are outstanding to the US Treasury Department. Chrysler already owes the Treasury Department US$4 billion in loans it received at the end of last year.

The auto task force, led by Steve Rattner, criticised a large number of points in Chrysler's standalone viability plan, saying that in particular the US carmaker lacked a global footprint, that the economies of scale in the areas of purchasing were too small with its US$20 billion annual purchasing budget, that its model range's development was far behind its competitors, that it devotes half the number of engineers that rival GM does, and was tipped to far in the direction of larger vehicles. "Chrysler's plan to address these issues is based on overly optimistic assumptions that are inconsistent with its current products and its resources," the report stated.

The report dismisses Chrysler's claims that it can steady its market share at 10.7 percent and sees no evident for this. The report comments that: "Chrysler has lost 5 percentage points of market share since the height of its share, at 16.2 percent, in 1998. Continued share erosion in line with recent history would translate into several billion dollars of increased losses over time."

Chrysler's assertions that it can reduce the large incentives it offers customers was also questioned by the task force report. "This is inconsistent with the company's recent history with regard to incentives, in which increasingly larger incentives still translated into continued share erosion," it noted. The car maker's struggling financial division, Chrysler Financial, was also singled out by the task force as being a problematic future area. "The captive finance unit has substantial financing challenges of its own in the current financing environment," said the reports, adding that, "future demand may depend on Chrysler finding alternate leasing sources."