U.S. President Barack Obama on Thursday congratulated Chrysler on reaching a deal with Fiat and deciding to seek bankruptcy protection, saying the moves will allow the automaker to "not only survive, but thrive."
Obama made the statement on the same day Chrysler filed for bankruptcy protection. It is expected to remain under Chapter 11 status for between 30 and 60 days.
The automaker will also suspend most of its production while it finalizes its deal with Fiat.
The two moves mean Chrysler will qualify for billions in taxpayer funding that Obama said will eventually be repaid.
"Today after consulting with my auto taskforce I can report that the necessary steps have been taken to give one of America's most storied automakers, Chrysler, a new lease on life."
Earlier in the day two U.S. government officials confirmed Chrysler LLC would file for bankruptcy protection following the collapse of negotiations with some of the struggling automaker's creditors.
The two officials spoke to The Associated Press on the condition of anonymity.
Discussions between the U.S. Treasury Department and Chrysler's lenders were designed to reduce nearly $7 billion in secured debt, and avoid bankruptcy.
But in the end, 40 hedge funds that hold roughly 30 per cent of Chrysler's debt refused to budge, said auto industry analyst Dimitry Anastakis.
"They're owed about $7 billion in total and the government is saying you should take about $2 billion of the $7 billion that you're owed, and they're refusing to do so," he told CTV's Canada AM.
"Most of the lenders have agreed to, but these few have not so they're threatening them with bankruptcy."
The four banks that hold the remaining 70 per cent of the debt agreed to take the $2 billion in exchange for cancelling the debt, but the hedge funds wanted a better deal, Anastakis said.
The negotiations ended late Wednesday night after progress came to a standstill.
"All this time the Canadian Auto Workers and the United Auto Workers and all the stakeholders have had to make concession and this is the one group that has refused to make concessions. Just about everyone else has," Anastakis said.
"They'll get some money, they just won't get what they want, and they're not happy about that."
It's possible the Canadian division of the company could follow suit and also seek bankruptcy protection.
However, the Canadian Auto Workers have said that plants here would continue to churn out vehicles if the parent company takes the bankruptcy route.
