AUBURN HILLS, Mich. (AP) -- Faced with persistent speculation that it was planning to file for bankruptcy protection, Chrysler LLC on Thursday issued a statement denying the rumor and saying it has plenty of cash.

The denial came on the same day the company welcomed ex-Chairman Lee Iacocca back into its fold with a rally with employees at its Auburn Hills headquarters. The 83-year-old Iacocca said the automaker would survive its current woes, just as it did when he helped save it from bankruptcy in the early 1980s.

Thursday's speculation apparently originated in Europe and came just two days after Chrysler exercised a $2 billion line of credit from Cerberus Capital Management LP and Daimler AG.

"This rumor is false and without merit whatsoever," company spokeswoman Shawn Morgan said, adding that it does not reflect the company's financial situation. "We are categorically denying this."

Morgan said Chrysler had to exercise the credit line before Aug. 3 under terms of Cerberus' purchase in August 2007 of an 80 percent stake in Chrysler from Daimler.

The borrowing of $1.5 billion from Daimler and $500 million from Cerberus is not an indication that the company is having cash flow problems, Morgan said.

Chrysler has insisted that it ended last year with $9 billion in cash and is exceeding its financial targets.

But sales through the first five months of this year are down 19 percent from the same period last year, and sales of its flagship Ram pickup truck are down 27 percent through May. U.S. light vehicle sales are down more than 8 percent.

Pete Hastings, senior analyst with Memphis, Tenn.-based Morgan Keegan & Co., said he thought the rumors were fueled by a Fitch Ratings report Wednesday downgrading Chrysler and General Motors Corp. to "B-" from "B."

The ratings agency said the outlook for both companies was negative and said that if sales next year remain flat with depressed 2008 numbers, "negative cash flows could result in Chrysler's liquidity position reaching minimal required levels in late 2009."

Hastings said he does not think the bankruptcy rumors have any merit in the short term.

"U.S. automakers have liquidity through 2008," he said. "Beyond that is a question mark."

Iacocca faced question marks when he ran Chrysler during another troubled time, and he told employees not to worry.

"Automobiles in America are still a vital business," he said, seated on a stage next to current chairman Bob Nardelli. "We'll live through it. Don't panic. Things are going to be OK."

Nardelli introduced Iacocca as "Chrysler's most dynamic leader" and "a great American" to the cheers of employees standing on three levels surrounding the building's atrium.

"Thanks to Lee, we're here today," Nardelli said.

The stage was flanked by two of the models that fueled Chrysler's comeback in the 1980s -- the K-car with its improved fuel efficiency at a time of rising gas prices and the minivan that won the hearts of a generation of suburban families.

After being fired by Ford Motor Co., Iacocca took the reins of the struggling Chrysler Corp. in 1979 and helped the automaker stave off bankruptcy during a severe auto downturn.

He appeared before Congress as part of a successful request for aid and starred in ads promoting the company's products.

"If you can find a better car, buy it," became his much-quoted, and later parodied, tag line.

"I didn't want to go to the government, but we had no one else to go to," Iacocca told the Chrysler employees, speaking of the pride he felt when Chrysler turned over its last $813 million payment to the government in 1983.

He retired in 1992.

But Iacocca clashed with company management in 1995, backing billionaire Kirk Kerkorian's $22.8 billion hostile takeover bid. Chrysler sued Iacocca, saying he gave away confidential information while still a consultant to the automaker. Iacocca later sued Chrysler, which refused to allow him to cash in $40 million in stock options.

Chrysler merged into DaimlerChrysler AG in 1998 before private buyers relaunched it as Chrysler LLC last year.

AP Auto Writer Tom Krisher contributed to this report.