NEW YORK (CNNMoney.com) — Chrysler LLC filed for bankruptcy Thursday. But a deal has been reached to combine the company with Fiat in order to allow Chrysler to stay in business.

The bankruptcy filing,which was made in federal court in New York, comes after some of Chrysler’s smaller lenders refused a Treasury Department demand to reduce the amount of money the troubled automaker owed them.

In remarks at the White House, President Obama said that the bankruptcy filing is not a failure for the company but “one more step on the path to Chrysler’s revival.”

The president harshly criticized the hedge funds and investment firm creditors that refused to go along with the deal accepted by larger lenders, saying that they had “decided to hold out for the prospect of an unjustified, taxpayer funded bailout.”

Obama vowed the bankruptcy process would be quick, efficient and controlled. A senior administration official predicted it would be completed within 30 to 60 days.

There will be no immediate job cuts or plant closings due to the bankruptcy filing, according to the official. But Fiat will be examining the cost structure of Chrysler to find additional savings. Fiat has promised to use Chrysler’s existing plants to build the small cars it now sells in Europe for the U.S. market.

An unspecified number of Chrysler’s 3,300 dealerships which now sell the Chrysler, Dodge and Jeep brands will be closed under the bankruptcy, although the administration official said that many of those closings will take place after the company emerges from bankruptcy.

Administration officials said the Treasury Department will provide Chrysler with $3 billion to $3.5 billion in additional loans to fund operations during bankruptcy.The government anticipates that it will provide an additional $4.7 billion of financing to allow Chrysler to exit bankruptcy.

Chrysler had asked the government earlier this year for $6 billion in new federal loans to help it stay in business. That’s on top of the $4 billion in loans it has already received.

The company faced a midnight Thursday deadline from the Treasury Department to reach deals with creditors who had loaned the company about $7 billion.
Last-minute deals ensured Chrysler’s survival

But the filing will not mean the halt of operations or liquidation for the troubled 85-year old automaker. Instead, the administration expects to use the bankruptcy process to join Chrysler with Italian automaker Fiat.

Chrysler CEO Bob Nardelli will leave the company after Chrysler emerges from bankruptcy and completes the alliance with Fiat. A successor for Nardelli was not named by either Chrysler or Fiat.

In addition, the United Auto Workers union announced late Wednesday night that its membership at Chrysler had overwhelmingly ratified a concession contract reached between the company and union leadership on Sunday night.

As a result of that deal, the UAW will own 55% of Chrysler. Fiat will own a 20% stake with the option of increasing it to 35%. The U.S. government will own 8% and Canada will have a 2% stake.

The union issued a statement Thursday afternoon saying it supported the bankruptcy process and the combination of the company with Fiat. It said it would ask the bankruptcy court to quickly approve the merger of the two companies as well as the new labor agreement.

President Obama said Thursday he was more confident than he was 30 days ago that Chrysler would be able to emerge from bankruptcy as a healthy, competitive company. He said the deals reached over the last month are in the best interests of not only Chrysler, its workers, suppliers and dealers, but also of taxpayers who are funding the reorganization.

The administration said Wednesday evening that talks with smaller lenders broke down when they refused to meet a deadline set by the Treasury Department to accept pennies on the dollars they had loaned the company.

Major banks such as Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) agreed to reduce their portion of $7 billion in secured loans to a more manageable $2.25 billion, according to the administration official.

But an administration official said “the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler’s future success.”

Chrysler and the rest of the auto industry have been hit by a sharp plunge in sales due to the global recession and tighter credit. Chrysler’s U.S. sales during the first three months of this year were down 46% from year ago levels. That followed an industry-worst 30% slide in sales last year.

Being privately held, Chrysler has not released its financial results for recent years. But the company needed a $4 billion federal loan in the closing days of the Bush administration to avoid running out of cash, while rival General Motors (GM, Fortune 500) received the first of what turned out to be $15.4 billion in federal loans so far.

Those federal bailouts staved off an uncontrolled bankruptcy at Chrysler that could have caused a rash of failures across the auto supplier industry and disrupted production at other automakers. Chrysler owes its suppliers about $7 billion, according to the latest figures available from the company. Some of those suppliers could still be hurt by the bankruptcy filing.

Chrysler is only a fraction of its former self. It has about 39,000 U.S. employees, only about 40% of the total it had at the beginning of the decade. It has fallen behind not only Toyota Motor (TM) in sales, but it is close to being overtaken by Honda (HMC) for the No. 4 spot for U.S. sales.

The company also has about 3,300 dealers who between them have 140,000 employees. It also has 65,000 U.S. retirees as well as their family members who depend upon the company for pension benefits and heath care coverage.

CNN White House correspondent Suzanne Malveaux contributed to this story. To top of page
First Published: April 30, 2009: 9:11 AM ET

The credits originally would have stopped after they had been claimed on 250,000 vehicles across the whole industry. Now the credits will apply on to up to 200,000 vehicles from any single manufacturer.

The old rules, passed in the fall of 2008, applied only to cars in the traditional sense, i.e., four-wheeled vehicles. Now three-wheeled and even two-wheeled electric vehicles are also eligible. Tax credits for these vehicles are calculated differently and they won’t be available until next year.

Read the rest at http://money.cnn.com/galleries/2009/autos/0902/gallery.electric_car_credits/index.html

Sen. Barbara Mikulski, D-Md., said the plan would aid the beleaguered automobile industry as well as create jobs at a time the economy is losing them at a rapid rate. “I believe we can help by getting the consumer into the showroom,” she said.

The provision was attached to the economic stimulus bill at the heart of President Barack Obama’s economic recovery plan and is subject to change or even elimination as the measure makes its way toward final passage.

Democratic leaders have pledged to have the bill ready for his signature by mid-month.   Read the full article at Yahoo News.

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