Lee Iacocca, who brought back Chrysler from brink in the 1980s, said that today's bankruptcy filing marks a "sad day" for him.
"It pains me to see my old company, which has meant so much to America, on the ropes," Iacocca said in an e-mail statement to ABC News. "But Chrysler has been in trouble before, and we got through it, and I believe they can do it again."
Iacocca, who served as CEO from 1978 to 1992, said if the company is smart they will bring together a consortium of workers, plant managers and dealers to come up with real solutions.
"These are the folks on the front lines, and they're the key to survival. Let's face it, if your car breaks down, you're not going to take it to the White House to get fixed," he said. "Every day I talk to dealers and managers, who are passionate and full of ideas. No one wants Chrysler to survive more than they do. So I'd say to the Obama administration, don't leave them out."
President Obama said today that Chrysler's decision to head into bankruptcy will help give the car company "a new lease on life." But Obama also attacked a group of hedge funds for holding out for more money while everybody else involved in trying to save the company was making sacrifices.
The president called the nation's third-largest automaker "an icon of America's auto industry and source of pride for generations of American workers," but he said that it has been "weakened by papering over tough problems and avoiding hard choices."
The president praised autoworker unions, management, dealers and group of lenders led by JPMorgan Chase for making major concessions. But, he said, a group of investment firms and hedge firms held out "for the prospect of an unjustified taxpayer-funded bailout."
That is the principal reason why -- despite everybody else's sacrifices -- Chrysler must now seek Chapter 11 protection.
"Some demanded twice the return that other lenders were getting. I don't stand with them," Obama said of the hedge funds. "I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler's cars."
Chrysler CEO Bob Nardelli says he will "leave the company following the emergence of the new company from Chapter 11 and the completion of the alliance with Fiat."
To help it compete, Chrysler announced today that it had reached "an agreement in principal" to partner with Italian automaker Fiat, which will share technology needed to help make more fuel-efficient cars.
The United Autoworkers health care plan, called the VEBA -- the Voluntary Employee Beneficiary Association -- will own 55 percent of the company, the U.S. and Canadian governments will own proportionate shares of a 10 percent stake and Fiat will initially hold a 20 percent ownership stake in Chrysler. Fiat can increase its ownership by an additional 15 percent. But Fiat cannot become a majority owner until after all U.S. government loans have been completely repaid.
The administration expects the bankruptcy to be short -- 30 to 60 days -- and will be filed "immediately" in a New York court.