U.S. Reportedly Prepares for Chrysler Bankruptcy

April 23, 2009— -- With the clock ticking on a government-imposed deadline to negotiate a deal with Italian automaker Fiat, struggling Detroit automaker Chrysler could end up filing for bankruptcy next week.

The New York Times, citing unnamed sources, reported that the Treasury Department was preparing a Chapter 11 bankruptcy filing for the company that would protect pension and retiree health benefits.

An administration official said that while there is "speculation until there's a deal. It should surprise no one that the administration is planning on contingencies."

The official stressed that the Obama administration is focused on working with all of Chrysler's stakeholders in order to find a working partnership between Chrysler and Fiat.

In a statement issued this evening, Chrysler did not directly mention the possibility of bankruptcy but did say that "it's important to keep all options open."

"Chrysler will continue to work through the end of the month, based on the direction given by the Presidential Auto Task Force, to secure the support of the necessary stakeholders and reach a successful conclusion that the Administration and U.S. Treasury deems appropriate," the company said.

The automaker also touted its potential alliance with Italian automaker Fiat. The government has previously said that it would only continue providing financing to struggling Chrysler if it reached an alliance deal with Fiat by April 30.

"Chrysler has consistently said that its viability will be enhanced through an alliance with Fiat, as it represents a change in the company's business model that expands its global competitiveness," the company said.

David Cole, the chairman of the Center for Automotive Research, suggested that the bankruptcy threat might improve prospects for the Chrysler-Fiat deal.

"The higher the level of threat of bankruptcy, the better chance of a deal to avoid bankruptcy," Cole said.

That "doesn't meant it won't occur," Cole said, but without being "at death's door, you are not going to get people to come to a deal."

"This is going to be a game on the edge, it's not going to be neat and clean," he said.