Chrysler is continuing to make progress to complete a proposed alliance with Fiat and qualify for additional government loans, Chrysler CEO Bob Nardelli said on Wednesday.

The US treasury has reached an agreement with Chrysler's largest creditors to cancel US$6.9bn of debt in exchange for $2bn in cash, Nardelli confirmed in a memo to staff obtained by Reuters.

"If approved, it would clear a significant hurdle on our continuing journey toward long-term success, but the proposed agreement still needs to be approved by all of the secured lenders," Nardelli reportedly said in the memo.

He also said the leadership of the United Auto Workers union unanimously approved a tentative new labour agreement with the automaker and had sent the deal to local union members for a ratification vote today.