UPDATE 2-Chrysler must shed 'shyster' bailout loans -CEO
* Chrysler CEO: 'I want to pay back the shyster loans'
* Deal on low-interest DOE loans possible by March
* Says looking to revamp Fiat-Tata Motors partnership
* Opens possibility of Fiat-Chrysler merger in 2-3 years (Adds detail on Fiat-Tata partnership, adds CEO comments opening possibility of Fiat-Chrysler merger in 2-3 years)
SAN FRANCISCO, Feb 4 (Reuters) - Chrysler is working to refinance what its chief executive characterized as "shyster loans" that the Obama administration extended as part of a bailout to keep the automaker from collapse in 2009.
"I want to pay back the shyster loans," Sergio Marchionne said at an industry conference, using a derogatory term for an unprincipled lawyer or politician. "Pay back the loans, get those out and then take (the company) public."
Marchionne, who is also CEO of Italy's Fiat SpA (FIA.MI) which owns 25 percent of Chrysler, has said repeatedly that the high interest rates on $5.7 billion that Chrysler owes to the U.S. Treasury have been an obstacle in the automaker's return to profitability.
Marchionne used the term "shyster" at least three times when discussing the interest rates on debt owed to the U.S. Treasury during his nearly hour-long appearance at an industry conference with auto dealers, journalists and analysts.
"When we did this deal back in 2009, we couldn't have borrowed a buck from a 7-Eleven store. The banking system was shut," Marchionne said of the bailout.
The sharp tone from an executive regarded as one of the shrewdest dealmakers in the auto industry comes after delays in Chrysler's application for a new round of low-interest loans from the U.S. government.
Marchionne said Chrysler was in the final stages of discussions with the Department of Energy on its application for up to $3.5 billion loans. A deal in principle to access the new loans was still possible by March, he said.
Chrysler applied for the Department of Energy loans in 2009 and executives had expected the funding by the end of 2010.
The Energy Department loans would allow Chrysler to borrow at essentially the same rate as the federal government and allow the automaker pay back higher-interest financing on the $5.7 billion it owes the U.S. Treasury.
The bailout loans carry a premium. Chrysler pays 7.2 percent on one tranche of its Treasury loan worth more than $2 billion and 10.55 percent on another $3.5 billion.
At the height of the financial crisis, Obama administration officials led by Steve Rattner and Ron Bloom debated whether Chrysler was worth saving.
The company ultimately filed for a bankruptcy brokered by the White House and was put under the management of Fiat in exchange for its pledge to restructure the weakest of the U.S. automakers.
Marchionne said while it would be "technically" possible for Chrysler to go public without refinancing its debt, that option would be unwise.
Marchionne is credited with reviving Fiat, whose brands include Ferrari, Maserati and Alfa Romeo.
Last year, Volkswagen AG (VOWG_p.DE) Chairman Ferdinand Piech expressed an interest in buying Alfa Romeo. But Friday, Marchionne flatly rejected any sale of Alfa Romeo to VW.
"As long as I'm the CEO of both Fiat and Chrysler, Mr. Piech will never get an offer," Marchionne said during the J.D. Power event.
Marchionne also said Fiat is looking to "redimension" its joint venture with Indian automaker Tata Motors (TAMO.BO) to sell Fiat-branded cars in India.
Tata CEO Carl-Peter Forster was quoted as saying this week that he is unhappy with sales under the partnership.
"Likewise," Marchionne said when asked about Forster's comments by reporters. "That's why it's on the table and we're going to discuss it."
Marchionne said in the next two to three years, Chrysler and Fiat could ultimately merge to form a single company, adding "for all I know it could be based here."
But there is a laundry list of things to do before a merger of Fiat and Chrysler could happen, including the refinancing of debt and the IPO, Marchionne said.
"I want to pay the shyster loans first," he added. (Reporting by Deepa Seetharaman, editing by Matthew Lewis)
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