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Chrysler's chances of avoiding filing for bankruptcy protection this week have improved, after it agreed a deal to reduce costs with its workers unions.

Chrysler is pinning its hopes of survival on the US government agreeing a tie-in with Fiat, but the Italian car company has said it will only agree a deal if labour union costs are driven down.

As a result, Chrysler announced a deal on Monday with the United Auto Workers Union (UAW), which represents the majority of its US workers, to revise labour terms and change its financial obligations to the union's retiree healthcare plan.

The UAW union said Chrysler, Fiat and the US Treasury Department agreed to the deal, although no details of what concessions had been given were revealed. Workers must approve the terms by Wednesday.

Chrysler had announced a similar deal with its Canadian Auto Workers union late last week.

Under the terms of the agreement Chrysler has agreed to:

- Retain current CAW wages and pension benefits

- Restructure the healthcare fund

- End a third shift at Chrysler's Windsor assembly plant

- Keep all of its Canadian plants open

CAW agreed to:

- Eliminate semi-private hospital room cover

- End employee discount on vehicle purchases

- End a $3500 (£2400) employee vacation buyout option

- Stop reimbursing tuition fees

- Increase prescription costs

- A 40-minute limit for for lunch and toilet breaks

- Let Chrysler use part-time temporary workers

- Let suppliers assemble parts in the factories

CAW leader Ken Lewenza called the agreement "the most torturous and unfair process imaginable".

Chrysler has until this Thursday to convince Fiat and the US government that it has restructured sufficiently to be a viable concern. If it fails, it will file for bankruptcy protection.

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