Chrysler to proceed with bankruptcy: White House official

The official said President Barack Obama would make a statement on the auto industry at midday (1600 GMT).Â

 

A bankruptcy filing would place the struggling number-three US automaker in the hands of a bankruptcy judge, although the company would likely get further government aid to restructure its operations.

 

The Obama administration, which has given Chrysler and its larger rival General Motors emergency loans, is also expected to help broker a deal that would give Italian maker Fiat a stake in Chrysler in exchange for small-car technology.

 

The news came after the United Auto Workers (UAW) union members approved an agreement to accept stock in place of cash obligations to the union’s retiree funds.

 

But the automakers other creditors failed to approve a tentative deal to restructure nearly 7.0 billion dollars in debt, the US official said.

 

"The administration went into yesterday afternoon with the full support of Chryslers key stakeholders, including the UAW and the largest creditors. That support remains," the official said.

 

But a tentative deal to provide 2.0 billion dollars for the debt to major banks and hedge funds failed to get approval even after Treasury officials sweetened the offer, the official said.

 

"The remaining creditors were provided a final opportunity to approve an increased offer of 2.25 billion dollars," with a deadline of 6:00 pm (2200 GMT) Wednesday.

 

"While the administration was willing to give the holdout creditors a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chryslers future success," said the official.

 

Their failure to act "does not diminish the accomplishments made byÂChrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward," the official added.

 

Obama suggested in a televised news conference Wednesday that even if Chrysler were forced into the bankruptcy courts, a quick restructuring could be achieved.

 

"I am actually very hopeful, more hopeful than I was 30 days ago, that we can see a resolution that maintains a viable Chrysler auto company," Obama said.

 

The details of a marriage between Chrysler and Fiat "have not yet been finalized, so I don’t want to jump the gun," Obama added at a White House news conference to mark his first 100 days in office.

 

"But I am feeling more optimistic than I was about the possibilities of that getting done," he said.

 

Under a preliminary deal signed in January, Fiat initially would take a 20 percent stake which would then rise to 35 percent and could eventually reach 51 percent.

 

Fiat would pay nothing, but would provide access for Chrysler to its technology, notably for smaller, more economical vehicles.

 

Earlier Thursday in Milan, a newspaper report said Chrysler and Fiat had signed a definitive alliance.

 

A Fiat spokesman reached by AFP would not confirm the report, saying he did "not know" who may have been the source of the information.