Chrysler LLC reached an initial agreement with Kia Motors Corp. (000270.SE) about buying a Kia vehicle and selling it as a Dodge, a Chrysler official said Tuesday - one of several potential alliances Chrysler explored last year before negotiating a partnership with Fiat SpA (FIATY).

Scott R. Garberding, Chrysler's chief procurement officer, testified at a court hearing Tuesday that Kia and the U.S. auto maker negotiated a term sheet to purchase and modify a vehicle from Kia.

However, Kia backed out of the deal "late in the game" because of manufacturing issues, Garberding said.

The potential Kia partnership shows just how dire Chrysler's situation had become and how far it was willing to go to protect its survival.

Chrysler relies on the North American market for 90% of its sales and its product portfolio is dominated by larger vehicles such as pickup trucks and Jeeps. The combination was bad news for Chrysler as gas prices surged in the U.S. in early 2008 followed by a recession.

Chrysler's former vice chairman, Tom LaSorda, spent almost all of his time visiting most of the global auto makers trying to forge relationships as slumping sales in the U.S. continued to erode the auto maker's financial stability.

Chrysler, which sought bankruptcy protection last week, is planning to sell most of its assets to a new company that will be owned by Fiat, the United Auto Workers union and the U.S. and Canadian governments.

A bankruptcy judge on Tuesday is considering rules for selling the auto maker to Fiat or another bidder, should one emerge.

Last year, Chrysler also explored a joint deal with GAZ and Magna International Inc. (MGA) to build a vehicle in Russia, using open capacity at a Gaz assembly plant.

The auto maker also explored larger potential alliances with Nissan Motor Co. (NSANY), General Motors Co. (GM) and Fiat in the past year, Garberding said.

The Nissan deal was explored in a 90-day study under a project named "Go Global," Garberding said. The companies had a face-to-face meeting on the study in Toyko in February 2008, he said.

The project looked at the possibility of Chrysler manufacturing a truck for Nissan and Nissan manufacturing small subcompact cars for Chrysler, Garberding said. The study also looked at potential cost savings, including purchasing, procurement and manufacturing.

The study wrapped up in May 2008, but the value of the deal had changed "for the most part in the wrong way" as financial conditions weakened, Garberding said.

The companies explored additional cost synergies, such as savings through the product and power-train initiatives, but the discussions didn't result in a deal, Garbering said.

In August, Chrysler initiated discussions with GM, calling the talks "Project America," Garberding said. There was a series of negotiations and a deeper information exchange in October, he said.

However, due diligence stopped after the financial crisis "hit in full force" around that time, Garberding said.

The Fiat talks began in June 2008 with discussions to build the Fiat 500 in a Chrysler plant in Mexico, Garberding said. The companies began talks of a broader alliance in November, he said.

-By Chad Bray and David McLaughlin, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com