Chrysler in asset sale talks, but Renault denies

DETROIT/PARIS (Reuters) - Struggling U.S. automaker Chrysler is in talks to sell assets to Renault-Nissan and parts supplier Magna, sources with knowledge of the discussions have told Reuters, though the French automaker Wednesday denied such talks were under way.

The third-largest U.S. automaker is under pressure to restructure after accepting $4 billion in U.S. government loans as slowing economies and tight financing shrink global demand for vehicles.

Renault and Japan's Nissan, in which the French firm owns a 44-percent controlling stake, had some contact with Chrysler about a sale of all or parts of the U.S. automaker before the U.S. government stepped in to bail out Chrysler and General Motors Corp in December.

Talks gathered momentum in recent weeks and have included discussions about a deal to sell Chrysler's iconic Jeep brand, three people with knowledge of the talks told Reuters.

Chrysler announced an alliance with Nissan last April and has had a long relationship with Magna. It bought automaker AMC including the Jeep brand from Renault in 1987.

Carlos Ghosn, chief executive of Renault and Nissan, has been looking to clarify whether a deal to acquire assets from Chrysler would jeopardize the company's access to U.S. government funding, one of those familiar with the talks said.

Chrysler has discussed selling an assembly plant in Belvidere, Illinois, to Canadian auto supplier Magna in exchange for long-term production contracts, according to the three sources.

Magna was one of the bidders for Chrysler when it was sold by former owner Daimler AG in 2007.

In a separate deal, Chrysler has been in talks with a pair of Chinese automakers, Chery Automobile and Guangzhou Automobile Industry Group Co, to sell them the PT Cruiser brand and tooling, according to the three sources.

Representatives of Chrysler, Cerberus, Magna, and Nissan declined to comment.

A spokeswoman for Renault denied talks were under way.

"Renault denies it is holding any talks with Chrysler," said Renault's Frederique Le Greves.

The company also denied a report in the Le Figaro newspaper which said Renault wanted to raise around 3 billion euros ($3.99 billion) by issuing convertible bonds.

Ghosn has repeatedly said he would not consider a deal that would involve spending cash in an uncertain market.

Chrysler Chief Executive Bob Nardelli said this week that he was not preparing the struggling automaker for sale.

GRAPPLING WITH FALLING DEMAND

Chrysler's U.S. sales dropped 30 percent last year and it burned through more than $9 billion in the last six months of the year to end 2008 with around $2 billion in cash.

Like its peers, Renault is grappling with falling demand and has been hurt by weakened currencies.

The company announced Wednesday that it might cut 4,000 jobs at Romanian unit Dacia.

Renault's unit sales fell by 4.2 percent in 2008 and ratings agency Moody's Investors Service Tuesday placed Renault ratings under review for possible downgrade.

"The review reflects the more severe decline of Renault's key automotive markets than previously anticipated by magnitude as well as by pace," said Falk Frey, Moody's senior vice president and the lead European automotive sector analyst at Moody's.

Renault shares were down 3.41 percent versus a Paris index off 1.03 percent as of 0959 GMT (4:59 a.m. EST).

Nissan shares closed up 3.5 percent at 325 yen after the news, off a day high of 333 yen.

Unlisted Chrysler, the third largest U.S. automaker, is owned by Cerberus Capital Management.

($1=.7520 Euro)

(Additional reporting by Soyoung Kim and Kevin Krolicki in Detroit; Astrid Wendlandt in Paris; Editing by Marcel Michelson, Jason Neely and Hans Peters)