DETROIT/WASHINGTON (Reuters) - Chrysler LLC -- battered for the past two years by disappearing global auto sales and the credit crisis -- filed for bankruptcy on Thursday and announced an industry-changing deal with Fiat after talks to restructure its debt broke down.
Despite weeks of intense negotiations, Chrysler failed to gain the full support from its lenders to avoid the first-ever bankruptcy filing by a major U.S. automaker.
The move was hailed by President Barack Obama as a critical step in saving 30,000 jobs at Chrysler, majority-owned by Cerberus Capital Group, and hundreds of thousands more jobs at affiliated suppliers and dealers.
At the same time, Chrysler as expected entered into an alliance with Italian automaker Fiat SpA where it sold a stake starting at 20 percent and in which Fiat can become the majority owner once the government loans are repaid.
The Chapter 11 filing, in U.S. Bankruptcy Court in Manhattan, sent shock waves through the entire industry -- including Chrysler's rivals and suppliers.
As part of the filing, the U.S. government will provide up to $3.5 billion in debtor-in-possession (DIP) financing and up to $4.5 billion in exit financing. Obama said he hopes the entire process will take only 30 to 60 days.
Some of Chrysler's 3,600 U.S. dealers are expected to close, and Chrysler Financial will stop providing loans for new cars and trucks. Instead, GM's financing arm, GMAC, will provide loans to Chrysler dealers.
