Chrysler LLC, the smallest of the US-based car makers, on Sunday moved a step closer to averting bankruptcy when it reached tentative concession agreements with the United Auto Workers and won ratification of its cost-cutting deal with the Canadian Auto Workers.

The UAW, in a statement, said the agreement was reached with Chrysler, Fiat and the treasury department. It said the deal includes modifications to the union's 2007 collective bargaining agreement and the trust programme dedicated to retiree health benefits. The UAW did not specify the concessions.

That still leaves two obstacles between Chrysler and up to $6 billion in additional loans from the US government. It needs a partnership deal with Italy's Fiat Group, as the treasury department's auto industry task force has said Chrysler is not viable on a stand-alone basis.

It also needs an agreement to swap equity for debt with banks and hedge funds that hold $6.9 billion in secured Chrysler loans. Chrysler faces a Thursday deadline to restructure to the government's satisfaction.

"We commend the UAW's leadership for their endless determination and perseverance in reaching this tentative agreement especially during these unprecedented economic circumstances that are plaguing the automotive industry," Al Iacobelli, Chrysler's chief labour negotiator and vice president of employee relations, said in a statement.

But the deal still needs to be ratified by the rank-and-file union members at Chrysler to take effect, with a vote due to take effect by Wednesday. The UAW said it could not disclose the details before first presenting them to its membership. But the union said the agreement met the demands laid out under terms of the $4 billion loan package that Chrysler received from the treasury in December.

Fiat's chief executive officer said earlier this month that he wasn't interested in an alliance with Chrysler unless there was a deal with the union, and the lenders reportedly would rather let the company go bankrupt and collect what they can from liquidation than agree to swap their debt for shares in Chrysler if there wasn't a cost-cutting deal first.

Even with the union deal, it is not clear that a deal will be closed with both Fiat and the lenders. All three agreements need to be reached by Thursday's deadline if a bankruptcy is to be avoided.

On Friday, Chrysler reached agreement with the Canadian Auto Workers on a deal that would, among other things, cut wages and bonuses and eliminate the employee pricing for vehicles. That agreement was up for a ratification vote over the weekend.

Closure could cause mayhem
Bankruptcy could lead to the eventual closure and liquidation of the 84-year old automaker that includes the Chrysler, Dodge and Jeep brands. Such a closure would cause problems throughout the industry.

It owes its suppliers about $7 billion, and could cause widespread bankruptcy and closures throughout the auto parts industry and could shut down production lines of most other automakers with North American plants.

It also would cause job losses at 3,300 dealerships and cost the economy an estimated $150 billion in household incomes within three years.

The attempts to keep the company out of bankruptcy come as the entire auto industry is suffering from its worst US sales in more than 26 years. Chrysler's sales in the first three months of this year were down nearly 46 per cent from year-ago levels, while industry-wide sales fell 38 per cent.

Forecasts are that April sales, due to be released on Friday, will also be very weak, with sales unlikely to pick up significantly until late this year at the earliest.