In a hugely positive step for Chrysler, the carmaker announced on Monday that it had reached a deal with the Canadian Auto Workers (CAW) union, while also agreeing to revised labor terms with the United Auto Workers (UAW) union. With just a few days left before the April 30 deadline for restructuring set by president Obama’s auto industry task force, Chrysler now has to focus on cutting its debt and forging an alliance with Italian auto giant Fiat.

While the alliance with Fiat appears to be progressing relatively smoothly, the issue of debt reduction is proving much more difficult for Chrysler. The carmaker still has a $10.6 billion cash obligation to the UAW’s retiree health-care trust fund, but according to latest reports half of this debt may be exchanged by the unions for a 55% stake in Chrysler.

People familiar with the matter revealed to Bloomberg that unions would also get representation on Chrysler’s board of directors in addition to the 55% stake, which is valued at $4.2 billion. The latest deal is said to have been approved by UAW leaders late yesterday and will most likely be ratified by the end of today.

While such an approach may appear drastic, with unionized employees effectively sharing the risks of the company, things may start to improve for the carmaker. Under the plan, Fiat would start off with just a 20% stake and have this increased by 5% to a total 35% once certain benchmarks are passed. The U.S. Treasury would then own the remaining 10%.

General Motors announced plans for a similar move on Monday, whereby it would offer certain bondholders shares of GM common stock and accrued interest in exchange for certain outstanding notes that total some $27 billion.