Chrysler is also getting a big boost from north of the border: Canada will contribute one dollar for every three dollars the U.S. government contributes.
Four banks with 70 percent of Chrysler's $6.9 billion debt had agreed to erase it for $2 billion, or less than 30 cents on each dollar held. That left Chrysler's fate in the hands of about 40 hedge funds, with about 30 percent of the debt.
The administration tried to sweeten the pot Wednesday, adding $250 million to the $2 billion that the banks had settled for.
Daimler, Chrysler's current minority shareholder, has agreed to waive its share of Chrysler's $2 billion of second lien debt, give up its 19 percent equity interest in Chrysler's ultimate parent and pay $600 million to Chrysler's pension funds.
Chrysler had a shortfall of $9 billion in its pension plan as of the end of November 2008. If the company were to turn over the pension plan to the Pension Benefit Guarantee Corporation, it would only kick in $2 billion to make up the difference. More important, pensioners could see big drops in how much they receive.
But that's not happening.
"The plans remain ongoing under the sponsorship of Chrysler, and are insured by the Pension Benefit Guaranty Corporation," said Acting Director Vince Snowbarger. "As the bankruptcy process unfolds, the PBGC will work with Chrysler, its unions, and all other stakeholders to ensure continuation of the pension plans."
The administration also said there will be no layoffs associated with the bankruptcy. Although dealerships will eventually take a hit and will be closed over time, but it is unclear at this point exactly how many. The company will be able to operate normally during the bankruptcy process. Americans will be able to buy Chrysler cars and warranties will be honored.
The president's auto task force rejected Chrysler's restructuring plan in March and gave the automaker more time to make another effort, including a tie-up with Fiat. The company has borrowed $4 billion from the government and needs billions more to keep operating.
In a letter to employees today, Nardelli said, "Thank you again for your tireless efforts during this extraordinary time, and your dedication to ensuring Chrysler's future success."