Chrysler said proposed partner Fiat SpA would assume 35 percent of its debt to the U.S. government and the U.S. automaker would no longer pay retention bonuses to key executives.

No new retention payments or any other form of bonus, will be awarded after January 2, 2009 as a result of the waivers signed by the company's top 25 executives, Chrysler said in a statement.

The statement follows public outrage over American International Group Inc's decision to pay $165 million in retention bonuses to some employees after accepting $180 billion in government aid to prop up the company.

Chrysler received a $4 billion emergency loan from the U.S. government on January 2 and has requested another $5 billion.

The automaker said in November that bonuses were owed under its contracts to key executives, based on a retention package that was crafted early in 2007 by former German parent Daimler AG when it was preparing to sell the Chrysler unit.

The U.S. Treasury had approved the retention payments earned prior to the receipt of government loans, the company said.

Separately, Chief Executive Bob Nardelli said Chrysler's proposed partnership with Fiat would represent billions in value, considering development costs for vehicles.

The No. 3 U.S. automaker has a nonbinding deal with Italian automaker Fiat, which has agreed to take a 35 percent stake in Chrysler in exchange for access to technology and overseas markets.

Under the terms of the deal, Fiat will not pay cash for the stake in Chrysler, which is 80.1 percent owned by Cerberus Capital Management .

But in a video message praising the advantages of the deal with Fiat, Chrysler said Fiat would assume 35 percent of Chrysler's debt to U.S. government but would not receive any money from that pool.

That's a significant commitment for Fiat, said Brad Coulter, restructuring advisor at Detroit area O'Keefe & Associates, who follows the auto industry closely.

In the same video, Nardelli said the proposed partnership was a tremendous opportunity.

We would leapfrog four, five or six years of development, he said. It's a perfect fit, as opposed to conflicting brands, overlapping dealers, etc.

Chrysler also said the combined purchasing budget of the two companies would be $80 billion.

The automaker said earlier this week that the Fiat deal is worth up to $10 billion for Chrysler and could preserve 5,000 North American manufacturing jobs.

(Reporting by Poornima Gupta; Editing by Tim Dobbyn)

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