DETROIT - Chrysler LLC Chief Executive Bob Nardelli said on Monday that German automaker Daimler AG is working with Cerberus Capital Management to divest its 19.9 percent stake in struggling U.S. automaker.

The top priority was to preserve Chrysler and the entire leadership team was focused on completing the required deals to qualify for emergency U.S. government loans, Nardelli's said in a memo to staff that was obtained by Reuters

Chrysler was working diligently to finalize our alliance with Fiat and restructure our business by the government's April 30 deadline, he said in the memo.

Under the terms of its government rescue, Chrysler has until the end of this month to reach agreements for an alliance with Italy's Fiat SpA, a reduction in secured debt and resolution of labor issues with its unions.

Chrysler has already reached cost-cutting agreements with its unions, United Auto Workers and Canadian Auto Workers, and is currently negotiating with its lenders to cut debt.

The automaker is also finalizing its planned alliance with Fiat, which now hinges on Chrysler securing concessions from those who hold automaker's first-lien loans, which includes a group led by JPMorgan Chase & Co and others.

Chrysler has about $7 billion of first-lien loans that stem from its breakaway from Daimler in 2007, and the creditor group had been asked initially to accept a steep reduction. Daimler still holds a stake of nearly 20 percent in Chrysler.

Daimler AG has previously announced its intention to divest its ownership share in Chrysler, Nardelli said in the memo. Cerberus Capital Management and Daimler are working through this process, and we are confident that this will be resolved.

(Reporting by Poornima Gupta)

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