Plan to Sell Chrysler to Fiat Clears Bar

The judge overseeing the bankruptcy of Chrysler on Tuesday took a significant step toward allowing the sale of most of the automaker to Fiat, approving the bidding procedures advocated by the company and backed by the Obama administration.

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Lawyers for Chrysler arrived at United States Bankruptcy Court in Manhattan on Tuesday.

The decision by the federal bankruptcy judge, Arthur J. Gonzalez, is a setback for a group of Chrysler creditors who have argued that liquidation of the company or some other transaction could yield greater value. These lenders, primarily investment firms, have said that the plan for the Fiat transaction ran afoul of bankruptcy law and would chill efforts by others to produce competing, potentially higher bids.

But Judge Gonzalez disagreed, saying, “The court concludes that the bidding procedures are appropriate and necessary.”

The judge’s decision was a victory for Chrysler and the government, which together argued that a speedy sale was the only way to protect tens of thousands of jobs and help along the American economy.

“It’s a very big first step,” said Howard Seife, the head of the bankruptcy practice at the law firm Chadbourne & Parke. “It’s clear that the company is moving down the road to a Fiat sale.”

The judge’s decision was the second blow dealt to the holdout lenders during a marathon hearing on Tuesday that began mid-afternoon and ended at 11 p.m.

Judge Gonzalez earlier ordered the disclosure of identities of the Chrysler creditors, who had said making them public could lead to retaliation. A lawyer representing them claimed that the creditors had been harassed, and some had even received death threats.

Judge Gonzalez, said that their lawyers had not presented enough evidence of risk and gave the creditors until Wednesday morning to reveal their identities. The primary evidence cited by their lawyers was a set of anonymous comments on The Washington Post Web site.

In a plan worked out with the Obama administration, several Chrysler assets would be sold to a new entity held by the United Automobile Workers union, Fiat, and the United States and Canadian governments.

Corinne Ball, the lead lawyer for Chrysler, argued that there was no time to wait to solicit additional bids for the company. “It’s not perfect, and no one is saying it is perfect,” she said of the sale proposal. “But we believe we’re doing what is appropriate and necessary.”

Thomas E. Lauria, the chief lawyer for the dissident creditors, said that any time pressure for the transaction had been created by Chrysler. The company’s strategy, he said, was to file for bankruptcy after it had run out of resources.

“Then you can do whatever you want to because there’s no time to do anything else,” he said. “I’m not sure that makes a lot of sense.”

Mr. Lauria argued that the proposed sale procedures would preclude other potential bidders, although Chrysler’s lawyers said that they will consider them.

Robert Manzo, an executive with the Capstone Advisory Group who is advising Chrysler, testified Tuesday that based on an analysis he conducted in January, updated with the carmaker’s current cash levels, the company could fetch as little as nothing if it were liquidated today.

The dissident creditors said Tuesday in a filing that they hold about $300 million of Chrysler’s $6.9 billion of secured debt.

Witnesses presented by Chrysler said that the company had explored forming a corporate alliance with another carmaker, such as General Motors and Nissan, over the past two years.

Lawyers for Chrysler, a committee for its unsecured creditors and the government did agree to extend the deadline for bids for the company’s assets. A sale would still take place by the end of May.

If the judge approves the sale, “the case is pretty much over,” Scott Van Meter, managing director of LECG, a consulting firm, wrote in an email message.

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Full article and photo: http://www.nytimes.com/2009/05/06/business/06auto.html?hp

A Laughably Late Conversion to the Cause of Fairness

There may be nothing more pathetic than a hedge-fund manager worked up in a moral lather, complaining that he hasn’t been treated fairly.

Since when did any of these guys ever worry about fairness?

Certainly fairness was not an overriding concern of hedge-fund managers when they threatened to move even more of their operations to the Cayman Islands if forced to pay a regular tax rate on their exorbitant management fees.

Nor do I recall receiving even a single e-mail from a hedge-fund manager complaining about how unfair it was that the government stepped in to bail out creditors and counterparties of Citigroup, Bear Stearns and AIG.

But now that these hedgies are looking at the butt end of a government-imposed cramdown that would give them only 30 cents of each dollar owed by Chrysler, suddenly they’re all about fairness and the rule of law.

What you need to know about these vultures is that their idea of fairness is throwing 100,000 people out of work and denying retirees their pensions and their health benefits just so they can liquidate the company and maybe squeeze an extra 15 cents on the dollar from their Chrysler debt.

Of course, to get that extra 15 cents, the hedge funds would probably have to fork over a penny or two to pay the army of $700-an-hour lawyers needed to spend two years working it through the bankruptcy process. Add to that another couple of cents for the battalion of $10-million-a-year investment bankers needed to sell the assets to the highest bidder. Meanwhile, every day that goes by, the value of those assets would decline a little more.

And what exactly are these precious Chrysler assets that the hedge funds think would fetch them so much in liquidation? Aside from a few valuable brands, they’re auto plants and machinery and large tracts of contaminated industrial land in some of the most economically depressed cities in the United States. No doubt folks would be lining up around the block for a chance to snatch up those babies.

A few years ago, when Americans were buying cars at the rate of 17 million a year, creditors might have gotten enough for them to pay off the $6.9 billion in secured debt held by the banks and hedge funds. But today, with vehicle sales running at a 9 million annual rate and with virtually no financing available, it’s not clear that those assets would fetch the $2.25 billion in cash they were offered by the government.

The creditors are right when they say that Obama offered a sweetheart deal to Chrysler’s employees and retirees, who as unsecured creditors would have stood in line behind banks and hedge funds in a liquidation and would probably have received nothing. It’s also true, as the unhappy creditors point out, that it was the above-market wages and benefits negotiated by the United Auto Workers that helped to bring Chrysler to the brink of bankruptcy in the first place.

But those arguments are really beside the point. If the U.S. government wants to lend billions of dollars to help save the jobs, pensions and health benefits of hundreds of thousands of workers, that is certainly its prerogative. And it doesn’t have to extend the benefits of that bailout in equal measure to the banks and hedge funds that stupidly lent $6.9 billion to finance a highly leveraged buyout of a long-troubled automaker.

The only “fairness” test that the bankruptcy judge must apply is to determine whether those secured creditors will get as much from the government’s proposed reorganization plan as they would from selling off the company in pieces. It shouldn’t take a judge more than a few weeks to conclude that 30 cents on the dollar is the best they’re going to do.

If there is anyone who can claim to have been treated unfairly in this process, it is us taxpayers.

The auto workers were offered a 55 percent stake in the new Chrysler in recognition of their willingness to accept Toyota-level wages and benefits and in lieu of the $4.6 billion in cash that had been promised to the retiree health fund. An additional 35 percent was offered to Fiat for management oversight and technology that it has already developed.

By contrast, for their loans of $15 billion — plus additional billions for plant modernization and dealer financing — all the U.S. and Canadian governments will get is a 10 percent stake and a promise that the loans will eventually be paid back with interest. You don’t have to be an investment banker to see that that is hardly sufficient compensation for a loan so risky that there isn’t a private lender in the world willing to make it.

It’s wonderful that we now have a president who stands with auto workers, car dealers and hard-hit communities. But as he moves on to the larger and more expensive task of rescuing General Motors, it would also be wonderful if he could be equally committed to standing with the taxpayers.

Steven Pearlstein, Washington Post

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Full article: http://www.washingtonpost.com/wp-dyn/content/article/2009/04/30/AR2009043003898.html?nav=hcmodule

Chrysler Partners Have Many Goals

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In assuming control of Chysler, Fiat would bring a great deal of experience with smaller cars, and would gain the use of Chrysler’s North American manufacturing facilities. The Italian automaker will provide technical operations, and build at least one vehicle in a Chrysler plant. Fiat did not put up any financing as part of the agreement.

Before Chrysler can start building cars that more Americans want to buy, it will have to overcome considerable challenges.

The biggest may be persuading its three principal new owners — the retiree benefit fund for the labor union that President Obama himself has identified as a contributor to the company’s decline; a government that insists it will keep its hands off day-to-day decisions; and a foreign car company, Fiat — to innovate in ways the carmaker has resisted for three decades.

There is reason for skepticism. For all the optimism expressed by the administration about a downsized, leaner Chrysler, the structure of the new Chrysler sets the stage for a conflict between current workers and retirees.

Chrysler’s workers, of course, are desperate to preserve their job security, their wages and their generous health care benefits, built up over years of negotiations. But it is Chrysler’s retirees who will hold a seat on the new company’s board, representing the interests of a dwindling — and expensive — retirement health plan.

“There’s a potential conflict there, absolutely,” one of Mr. Obama’s aides conceded Thursday.

The innovative element of the new company is supposed to come from Fiat, the Italian automaker that managed a remarkable turnaround in the last five years. Fiat turns out fuel-efficient engines and sporty, economical small cars — exactly the image of the future American car industry that Mr. Obama talks about in glowing terms.

But when Chrysler was controlled by Daimler-Benz, one of Europe’s most successful luxury carmakers, everyone hailed the potential of great crossborder synergies. They simply never materialized.

Members of the team that negotiated the deal insisted on Thursday that they had explored all those risks as they revamped Chrysler and faced down a group of recalcitrant lenders who, on Wednesday night, balked at taking a deal that would give them about 28 cents for every dollar they had lent the company over the years.

The United Automobile Workers will not be managing the company the way unions tried, and failed, to manage United Airlines, they said. Moreover, Fiat is not Daimler — it is geared toward small, midmarket cars, not fine driving machines with wood-burl dashboards, they added.

Mr. Obama is trying to portray the government’s role as more venture capitalist than manager.

“I’m not an auto engineer,” the president declared Wednesday evening during the news conference marking his 100th day in office. “But I know that if the Japanese can design an affordable, well-designed hybrid, then doggone it, the American people should be able to do the same.”

In fact, in Chrysler’s case, he is relying on Italian technology — Fiat technology — to do what Chrysler has been unable to do itself. And while the White House doesn’t want to advertise that fact as Chrysler embarks on its latest last chance, the plan is for Chrysler to ultimately be a subsidiary of Fiat, in a turnabout of fortune like those in the early days of the auto industry, when giants were consumed by faster-moving competitors.

The plan announced Thursday creates incentives for Fiat to obtain a majority share of its troubled American partner, step by step. Fiat’s stake is supposed to rise in 5 percent increments, if it satisfies each of three milestones: It must expand Chrysler’s market beyond North America by putting Chrysler’s popular Jeeps on car lots in places like Brazil and Italy; it must begin to produce high-performance engines in old Chrysler factories; and it must produce a car that can get 40 miles to the gallon.

The entire venture will be overseen by a new board, including four directors appointed by the president — some of whom, it appears, have already been approached about the job.

Mr. Obama insists that beyond appointing those directors — mostly “experienced C.E.O.’s,” one administration official said — Washington will keep its hands off. But he cautioned that “every dime of new taxpayer money will be repaid before Fiat can take a majority ownership stake.”

That “new money” amounts to about $8 billion in loans, including the cash to pay off Chrysler’s lenders. The federal government has already extended about $4 billion to keep the company afloat in recent months.

The plan faces another potential hitch: that 40-mile-a-gallon car, according to administration officials, probably will not be for sale in the United States until 2012. If the Secret Service can be persuaded, Mr. Obama could tool around in it as he campaigns for re-election.

That means the government, the unions and Fiat must find a way to keep Chrysler afloat for two and a half years, in the worst car market in memory and with offerings that Mr. Obama himself described Thursday at the White House as “less popular, less reliable and less fuel-efficient than foreign competitors’.” Presumably, they will keep that ringing endorsement out of the company’s advertisements.

At General Motors, the events about to unfold are even more complex. While the United States government will hold only about 7 percent of Chrysler’s shares, it will very likely end up with 55 percent of G.M., once the world’s largest carmaker.

And while Mr. Obama says he neither wants to dictate car models nor run the companies, their success or failure will be viewed, rightly or wrongly, as his success or failure as the auto executive he says he never wanted to be.

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Full article and photo: http://www.nytimes.com/2009/05/01/business/01assess.html?hp

The Lenders Obama Decided to Blame

Peter A. Weinberg and Joseph R. Perella are part of a band of Wall Street renegades — “a small group of speculators,” President Obama called them Thursday — who helped bankrupt Chrysler.

That, anyway, is the Washington line.

In fact, Mr. Weinberg and Mr. Perella, with sparkling Wall Street pedigrees, are the epitome of white-shoe investment bankers. And their boutique investment bank, a latecomer to Chrysler, played only a small role in the slow-motion wreck of the Detroit carmaker.

But now the two men, along with a handful of other financiers, are being blamed for precipitating the bankruptcy of an American icon. As Chrysler’s fate hung in the balance Wednesday night, this group refused to bend to the Obama administration and accept steep losses on their investments while more junior investors, including the United Automobile Workers union, were offered favorable terms.

In a rare flash of anger, the president scolded the group Thursday as Chrysler, its options exhausted, filed for bankruptcy protection. “I don’t stand with those who held out when everyone else is making sacrifices,” Mr. Obama said.

Chastened, and under intense pressure from the White House, the investment firm run by Mr. Weinberg and Mr. Perella, Perella Weinberg Partners, abruptly reversed course. In a terse statement issued shortly before 6 p.m. Thursday, Perella Weinberg Partners announced it would accept the government’s terms.

It was too late.

Whether the other Chrysler holdouts will capitulate as well remained unclear. At least one, OppenheimerFunds, insisted it would not back down.

But whatever the outcome, this bit of brinkmanship — which many characterized as a game of chicken with Washington — has become yet another public relations disaster for Wall Street.

Representatives for Perella Weinberg, which is advising the government on a wide range of banking issues, initially defended the firm’s decision to rebuff the government’s offer. They characterized the move as a principled stance against the administration’s growing intrusion into American business. Many in the financial and in the legal worlds said the investors were within their rights to challenge the proposal.

OppenheimerFunds, in a statement, said: “Our holdings in secured Chrysler debt are entitled to priority in long-established U.S. bankruptcy law, and we are obligated to our fund shareholders to support agreements that respect these laws.”

But now that Chrysler has tipped into bankruptcy, some industry executives worry the administration will try to turn this episode to its political advantage. Washington, these people contend, needed some political cover for the mess in Detroit — and Wall Street provided a handy scapegoat. A move is already afoot to tighten oversight of hedge funds and end certain tax benefits for private investments funds. The Chrysler bankruptcy, and Wall Street’s role in it, will make resisting those efforts more difficult.

What is striking to many in financial circles is how much Chrysler’s reluctant creditors gambled for what is, in the scheme of this bankruptcy, a relatively small amount of money.

After weeks of increasingly rancorous negotiations, Perella Weinberg and 17 other financial firms — including OppenheimerFunds and Stairway Capital, a hedge fund that specializes in troubled companies — rejected the administration’s plan. It was, they argued, simply unfair.

These investors together hold about $1 billion of Chrysler’s secured debt. The Treasury offered to pay all of Chrysler’s senior lenders $2.25 billion in cash if they forgave most of the company’s debts. Perella Weinberg and the others demanded more, arguing they would receive at least that much, and possibly more, under ordinary bankruptcy proceedings.

But this is no ordinary bankruptcy. JPMorgan Chase and other large banks involved in the negotiations are, to greater and lesser degrees, beholden to Washington. Many have received billions of taxpayer dollars, as well as other generous subsidies. For the banks, defying the administration was never a serious option, according to people close to the talks with lenders, who asked not to be identified because they had signed confidentiality agreements.

The other creditors, who sought to distinguish themselves from those who have received bailout money, believed they had a stronger hand. Many of them bought Chrysler debt for about 30 cents on the dollar, long after it became clear that the company was in trouble. Most of this debt is secured by Chrysler assets — factories, equipment, real estate and the like. The thinking was that in the worst case, these assets could be sold at a profit if Chrysler were liquidated.

The dissident creditors said they had a fiduciary responsibility to seek the best possible returns for their own investors — which, the group said, include teachers’ unions, pension funds and endowments.

“The government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades,” the group said in a statement Thursday. The creditors suggested banks that had received bailout money were being strong-armed by the administration, a view some of the bankers privately said they shared.

Now, however, Perella Weinberg and others will have to see what the bankruptcy court decides the creditors should get. If the other holdouts object to the reorganization plan — and it was unclear whether they would — they stand little chance of prevailing in court, bankruptcy lawyers said. The administration hopes to complete the proceedings within 60 days, and the political pressure to go along is unlikely to let up.

“Saying they have an uphill battle is an understatement,” said John C. LaLiberte, a bankruptcy lawyer with the firm Sherin & Lodgen.

Even those involved in the negotiations see little upside in fighting. “There’s zero chance this group will be able to get anything more in bankruptcy court given that 90 percent of the lenders are lined up against them,” said a hedge fund manager who owns about $10 million of Chrysler’s secured debt and voted for the government’s proposal.

Even before Chrysler filed for bankruptcy, another member of the group, Elliott Management, also accepted the government’s deal. In a six-line statement proclaiming its U-turn, Perella Weinberg said its Xerion Fund would do the same.

“We believe that this is in the best interests of all Chrysler stakeholders, and our own investors and partners,” the firm said Thursday.

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Full article: http://www.nytimes.com/2009/05/01/business/01hedge.html?hp

The Chrysler Bankruptcy

When President Obama outlined his plan to restructure Chrysler under bankruptcy-court protection, we shared his view that keeping a company “afloat on an endless supply of tax dollars” was no solution to the cratering of even iconic American companies.

We also admired his supreme confidence that the Chrysler bankruptcy will be a quick, official and controlled process. We just wished we were as confident as the president.

If the process is prolonged, the costs and complexity would likely ensure that the company would never emerge from bankruptcy proceedings, with dire implications for employment and economic recovery.

For the administration, the Chrysler bankruptcy filing became inevitable when a holdout group of the carmaker’s lenders rejected the government’s final offer to settle their debts, for about 33 cents on the dollar. The United Auto Workers union had already agreed to concessions to help keep the company afloat, as had large banks who hold most all of the company’s debt. Chrysler and the Italian carmaker, Fiat, had also agreed to a partnership that would enable Chrysler to tap into Fiat’s technology, designs and management.

By pushing the matter into bankruptcy court, the administration is assuming that the judge will also reject the holdouts’ demands. That would allow for a quick restructuring while keeping intact the previous agreements with the union, the big bank lenders and Fiat. In short order — 30 to 60 days by the administration’s estimate — Chrysler would emerge from bankruptcy with all the pieces in place to become in Mr. Obama’s words, “stronger” and “more competitive.”

There are reasons to hope it will work out that way. In particular, a judge may be unwilling to favor the dissident bondholders when other significant stakeholders have been able to come to agreement outside of court.

But short “prepackaged” bankruptcies generally succeed when all of the difficult issues are resolved ahead of time, requiring only a judge’s official approval. The judge in the Chrysler case may not see the remaining issues in the same cut-and-dried way that the administration does. Quickie bankruptcies like the one the administration envisions for Chrysler have also never been attempted for a company as big and multifaceted as a carmaker. If the Chrysler bankruptcy case does not proceed apace, the administration will need a new plan — and fast — to avoid pouring taxpayer money into a restructuring that may never yield the desired result.

If the bankruptcy succeeds, there is no guarantee that the Chrysler and Fiat partnership will succeed. A recent report by Fortune magazine detailed the likelihood of culture clash in a Chrysler-Fiat combination, given the companies’ complexity and different national identities. Remember the disastrous Daimler-Chrysler marriage?

It will also take some time, probably at least a couple of years, before the Chrysler and Fiat partnership yields any new cars. In the meantime, Chrysler’s own brands like Dodge and Jeep have been badly damaged by the company’s failing fortunes.

The Chrysler bankruptcy filing is a bold move for the administration, a refusal to blink when confronted with what it perceived as unreasonable demands. The object of the game — a strong and competitive Chrysler — is far from achieved.

Editorial, New York Times

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Full article: http://www.nytimes.com/2009/05/01/opinion/01fri1.html/

Canada and Ontario to lend Chrysler $3.8-billion

Federal and Ontario governments secure 2% stake; car maker agrees to maintain 20% of output in Canada.

Canadian governments are providing a $3.8-billion lifeline to Chrysler LLC, one they say is crucial to securing a future for the auto sector in Canada.

The loans are part of a $15-billion (U.S.) bailout package announced on Thursday by the Obama administration in Washington and the federal and Ontario governments on this side of the border.

In return for the $3.8-billion (Canadian) in assistance here, the federal and Ontario governments will receive 2 per cent of the equity in Chrysler, one seat on its nine-member board and a pledge from the company to maintain at least 20 per cent of North American auto production in Canada.

The announcements came as Chrysler sought Chapter 11 protection in the United States from creditors Thursday and formed a new partnership with Italy’s Fiat SpA.

Mr. Harper said on Thursday that Canada had no choice but to participate in the restructuring once the former Bush administration in the United States got involved late last year. He and Ontario Premier Dalton McGuinty concluded that the only realistic option was to have Canada participate as well in the restructuring, he said.

“Otherwise, through a politically directed restructuring in the United States, we would stand a serious risk of the complete restructuring of the industry outside of this country,” he said at a news conference in Toronto.

Mr. Harper stressed that the loans from Ottawa and Ontario come with strings attached, including a requirement that Chrysler produce 20 per cent of the cars it makes in North America in Canada. If it falls below that threshold, both in auto production and investment, the company will be in default on the loans and the federal and Ontario governments can demand repayment.

“Let not anyone suggest that the money we are giving today is a gift,” Mr. Harper said. “We have insisted that the very difficult decisions that are necessary to ensure the viability of this company have been made.”

But the governments did not extract commitments from Chrysler on job quotas in Canada and Mr. Harper acknowledged that a smaller company will emerge out of the restructuring.

“Let’s be clear,” he said. “We’re choosing between a smaller company or if we had stayed out of this, simply allowing the collapse of the company.”

Premier Dalton McGuinty, who was at Mr. Harper’s side during the news conference, said Ontario is the No. 1 auto producer in North America and a collapse of Chrysler would have rippled through the economy.

“The auto sector exercises such a powerful and disproportionate influence on our economy,” he said.

Canadian Auto Workers president Ken Lewenza said maintaining the 20 per cent threshold was a crucial issue for the union. “From our perspective that was a deal breaker.”

Mr. Lewenza endorsed the proposed partnership between Chrysler and Fiat. He referred to his face-to-face meeting this week with Mr. Sergio Marchionne, Fiat’s CEO. “He is a talented, fair person, and I look forward to working with him. Canada has been very good to Chrysler over the years, and we will be very good to Fiat, too,” he said.

Mr. Lewenza commended the Canadian and Ontario governments for their efforts to safeguard Chrysler’s presence here. “By participating in the restructuring, and confirming Chrysler’s continuing footprint here, our governments are helping to ensure that Canadians capture a fair share of the benefits once the company turns around in the future.”

He said he expects Canadian Chrysler plants will be shut for most of the duration of the Chapter 11 proceedings, once they run out of parts.

“Our plants will run for as long as the supply base allows them to,” he said. “Once the supply chain exhausts its inventory, we will be down.” But it won’t take long to use up available parts, he said, because of the just-in-time inventory system.

Chrysler will have up to eight years to repay the Canadian loans, which will carry an interest rate of at least 7 per cent.

Ottawa is providing two-thirds of the funding, and Ontario the remaining one-third. The loans will be provided in three separate tranches:

– Interim loans of $1.21-billion, including $1-billion that has already been committed;

– A $1.45-billion contribution to the debtor-in-possession financing in the United States;

– A restructuring loan in the amount of $1.16-billion.

There are no plans for Chrysler Canada to seek bankruptcy protection in this country.

In comments Thursday, Mr. Lewenza also stressed the need to develop a broader national auto strategy to reinforce the industry’s underlying fundamentals in the future.

“It’s essential to help the industry survive the side-effects of the global financial crisis,” he said. “But we also need a long-term vision to build this industry well into the future, one that addresses key challenges like infrastructure, the environment, and trade imbalances.”

Mr. Lewenza called on the federal government to recommit to the work of the Canadian Automotive Partnership Council, the multi-stakeholder body which has been developing a long-run industrial policy for the automotive sector.

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Full article: http://business.theglobeandmail.com/servlet/story/RTGAM.20090430.wchryslercanada0430/BNStory/Business/home

Chrysler Bankruptcy Plan Is Announced

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President Obama spoke on Thursday about Chrysler seeking bankruptcy protection and its alliance with the Italian automaker Fiat.

Chrysler, the third-largest American auto company, will seek bankruptcy protection and enter an alliance with the Italian automaker Fiat, the White House announced Thursday.

The bankruptcy case, which officials envisioned as a swift, “surgical” process, was set to be filed in United States Bankruptcy Court in New York. It marks the first time a major American car company has tried to restructure under bankruptcy protection since Studebaker in 1933.

President Obama announced the plan, including the Fiat alliance, in televised remarks shortly after noon. He said the outcome was a much better outcome than seemed likely only a month ago.

A senior White House official said that the bankruptcy case would begin immediately, and that the government would provide debtor-in-possession financing in a range of $3 billion to $3.5 billion, so the company can continue to operate normally.

Once Chrysler restructures, the company would receive $4.5 billion in financing to restart its operations, for total American government support through the bankruptcy process and afterwards of up to $8 billion.

That is $2 billion more than Mr. Obama initially said the company would receive if it successfully reached a deal with Fiat.

Chrysler has already received $4.5 billion from the government, under a bailout plan put into effect by the Bush administration in late December, after Congress rejected legislation that would have provided federal aid.

The Canadian government also is expected to provide $1 for every $3 in American support, the official said, meaning Chrysler could receive another $2.6 billion.

Government officials estimated that the case could be as short as 30 to 60 days, although bankruptcy cases normally take much longer. The end result would be a new version of Chrysler that would emerge from bankruptcy without liabilities, such as debt and legal obligations, faced by the company now.

At the same time, Chrysler and Fiat signed an agreement that calls for Fiat to take part in running Chrysler. The Italian automaker will provide technical operations, and build at least one vehicle in a Chrysler plant. Fiat did not put up any financing as part of the agreement.

A new board will be appointed to run Chrysler that is expected to include representatives from both companies and the United Automobile Workers union. Chrysler’s chief executive, Robert L. Nardelli, is expected to leave the carmaker.

The bankruptcy filing could serve as a preview of what a filing by General Motors might look like. G.M., which like Chrysler received federal assistance last year, faces a June 1 deadline for its own restructuring.

President Obama had set a Thursday deadline for Chrysler to conclude a deal with Fiat, and to resolve issues with the United Automobile Workers union and its creditors.

On Wednesday, union members approved contract changes with Chrysler that will mean pay and benefit cuts, and their contract is expected to remain in effect during the bankruptcy. “No judge is going to override that kind of support,” the administration official said.

But Chrysler and the Treasury were unable to reach agreements with all the holders of $6.9 billion in company bonds. A number of investment funds balked at a government offer to pay $2.25 billion in cash for the debt, an offer that was sweetened after four major banks agreed to an earlier offer of $2 billion.

White House officials said the failure to reach agreement with lenders was the reason why President Obama decided Chrysler should go through the bankruptcy process.

However, dealing with the leaner Chrysler will also benefit Fiat.

White House officials said some of Chrysler’s 3,600 dealers in the United States are expected to close, and Chrysler Financial, the company’s lending arm, will cease providing loans for new Chrysler cars and trucks. Instead, GMAC, the financing arm partially owned by General Motors, will take over lending to Chrysler dealers.

The administration said it did not expect significant white or blue-collar job cuts as a result of the bankruptcy. Chrysler suppliers also can expect their contracts will be honored, although the company would have the right under bankruptcy protection to cancel them.

Last-minute efforts by the Treasury Department to win over recalcitrant Chrysler debtholders failed Wednesday night.

An administration official said the government had the “full support of Chrysler’s key stakeholders” in its efforts to restructure the company and expressed confidence about Chrysler’s prospects for emerging stronger. But the official, who declined to speak for attribution ahead of President Obama’s announcement, made it clear that the administration was frustrated with the holdout creditors.

A group of Chrysler’s secured lenders fired back, saying that the administration was skirting bankruptcy laws by forcing them to take a larger loss on their debt than other stakeholders in the company. They said their proposals to restructure Chrysler had been ignored by the government.

“The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well-being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades,” the group, which calls itself the Committee of Non-TARP Lenders, said in a statement.

Members of the committee include units of Oppenheimer Funds, Perella Weinberg Partners’ Xerion Capital Fund and Stairway Capital Management. The funds emphasized that their investors are major pension funds, teachers’ unions and school endowments.

The lenders said they have been forced to negotiate through a group of big banks that have accepted government bailout money and are reticent to push back against the government’s proposal. They are particularly upset that the United Auto Workers will receive more for their debt even though the secured lenders should legally be paid before the union.

Many of the holdout lenders, primarily distressed-debt hedge funds who bought portions of Chrysler’s $6.9 billion of bank debt at a discount, are likely to argue that they have the first claim to the carmaker’s assets that were pledged for those loans, according to people briefed on the matter.

They argue that they would see greater recovery in a liquidation of the car giant, which they contend would yield about 65 cents on the dollar. The most recent plan proposed Wednesday by the Treasury Department and Chrysler’s four main bank lenders — JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — would have given the creditors about 33 cents on the dollar.

The four big banks own 70 percent of Chrysler’s secured debt.

As the talks with Fiat and the lenders entered the final hours, members of the United Automobile Workers union approved a historic deal in which the union would take a 55 percent stake in Chrysler. The stake would finance half of a new trust to administer retiree health care costs.

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Full article and photo: http://www.nytimes.com/2009/05/01/business/01auto.html?hp