Chrysler will file for bankruptcy

Reporting by Jeff Mason, Corbett Daly and John Crawley, editing by Vicki Allen)

Talks with Chrysler debt holders break down

1225 hrs.

Obama pledges 8 Billion to Chrysler a process that will take up to 60 days to complete, says he disagrees with hedge fund and creditors , takes a tough stance in protection of Chrysler. Warranties will be backed by the United States, urges consumers to buy American cars.

http://www.whitehouse.gov/search/?keywords=chrysler

WASHINGTON – Chrysler LLC will proceed with Chapter 11 bankruptcy protection to complete its restructuring after attempts to reach concessions with lenders faltered, an administration official said Thursday.

The U.S. Treasury had been in tense negotiations with a small group of hedge funds to wash out its remaining debt and facilitate an alliance with Fiat SpA, a step considered essential to Chrysler’s survival.

Those last-ditch efforts were unsuccessful as the clock wound down on a government-imposed deadline for Chrysler to come up with a viable business plan, according to the administration, which said Chrysler would attempt to finish its overhaul in bankruptcy court.

"Their failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward," the official said.

President Barack Obama will issue a statement on Chrysler at noon EDT.

U.S. officials had offered Chrysler’s secured lenders $2.25 billion in cash in exchange for forgiving their primary debt of nearly $7 billion, the official said.

Chrysler’s biggest banks had agreed to terms, but three fund management firms held out.

Chrysler, which has been kept alive with $4 billion in government bailout funds since December, has already won sweeping concessions from the United Auto Workers (UAW).

General Motors Corp faces a June 1 deadline to restructure on its own or face likely bankruptcy. GM has received $15 billion in bailout money.

Ford Motor Co is also struggling but has not sought a government rescue.

Chrysler is run by privately held Cerberus Capital Management

update 1230 hrs……………………

President Barack Obama’s auto task force in March rejected Chrysler’s restructuring plan and gave it 30 days to make another effort, including a tie-up with Fiat. The company has borrowed $4 billion from the federal government and needs billions more to keep operating. President Obama said Wednesday night while the lender talks were still ongoing that he was "very hopeful" that deals can be worked out to keep Chrysler LLC a viable automaker, and more hopeful than he was a month ago that the company will stay in business.

The UAW agreement, which would take effect May 4, meets Treasury requirements for continued loans to Chrysler Corp., and includes commitments from Fiat to manufacture a new small car in one of Chrysler’s U.S. facilities and to share key technology with Chrysler.

Meanwhile, the Fiat partnership means Chrysler CEO Robert Nardelli could be out of a job. In an April e-mail to employees, he said that if the deal is completed, Chrysler would be run by a new board appointed by the government and Fiat. The new board, Nardelli wrote, would pick a CEO "with Fiat’s concurrence."

Sergio Marchionne, CEO of the Italian automaker, told reporters earlier this month that he could run Chrysler. Obama said Wednesday that Fiat’s management "has actually done a good job transforming their industry."

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Krisher reported from Detroit. Associated Press Writers Ben Feller in Washington, Colleen Barry in Milan, Italy, Kimberly S. Johnson in Detroit and David Eggert in Lansing, Michigan, contributed to this report.