At the New York Auto Show last week Chrysler LLC's Jeep brand last announced the arrival of the all-new Grand Cherokee (2011) SUV which is set to be a key new model introduction.

The consortium of leading financial institutions that hold almost US$7 billion of secured debt against Chrysler LLC are holding out against US Treasury Department proposals that would see them walk away with as little US$1 billion if the planned global alliance between Fiat and Chrysler goes ahead at the end of the month.

As the half way point is reached in the month long deadline imposed by the Obama Administration for the two carmakers to secure a meaningful alliance ticks by the consortium of lenders, led by JP Morgan Chase, Citigroup, Morgan Stanley, Goldman Sachs and hedge fund Elliott Management, are unhappy with the deal they are being offered.

As secured creditors these institutions will be the first in line if Chrysler is pushed into bankruptcy next month, a real possibility as the US Treasury Department claims it will switch off the financial taps if a deal with Fiat isn't reached. Chrysler is currently surviving thanks to a US$4 billion loan handed out by the federal government at the beginning of the year and it could receive up to a further US$6 billion if it successfully ties up the ambitious plans it proposes with Fiat.

This push to reduce the lender banks' positions by around 85 percent is the first move by the US Treasury Department against these institutions as it demands that all Chrysler's creditors and unions make big sacrifices to ensure its future. "Whether it's a bankruptcy or a restructuring, you would wipe out the senior lenders group last," a person in the lender group who is familiar with the negotiations told The Washington Post on the condition of anonymity. "We all realise that some pain is going to have to be shed. But sacrificing 85 percent at the top of the capital structure just doesn't make sense."

Many of these banks have recently received bailout money from the US Treasury Department and this anomaly has been seized upon by several Washington congressional representatives. "We are engaged in ongoing discussions with the US Treasury and Chrysler, and continue to work diligently toward achieving a thoughtful solution prior to the April 30th deadline," said the consortium of banks in a statement late last week. These lenders could expect to recover 30-50 percent of their loans in the case of a bankruptcy, according to reports.

Meanwhile, Chrysler LLC's current shareholders, Cerberus Capital Management (80.1 pct), and Daimler AG, the former owners who still hold the balance of the ailing carmaker's stock, are reportedly ready to turn their current second lien loans into equity. These loans amount to US$500 million and US$1.5 billion respectively.