Chrysler Succumbs to Bankruptcy After Struggle

Chrysler headquarters shown in Auburn Hills, Mich., Monday. Chrysler LLC cleared another major obstacle to its survival Sunday when it reached a tentative deal for concessions with the United Auto Workers union.

(Paul Sancya/AP Photo)

After months of living on government loans, Chrysler finally succumbed to bankruptcy Thursday, pinning its future on a top-to-bottom reorganization and plans to build cleaner cars through an alliance with Italian automaker Fiat.

The nation's third-largest car manufacturer filed for Chapter 11 bankruptcy protection in New York after a group of creditors defied government pressure to wipe out Chrysler's debt. The company plans to emerge in as little as 30 days as a leaner, more nimble company, with Fiat potentially becoming the majority owner in the future. In return, the federal government agreed to give Chrysler up to $8 billion in additional aid and to back its warranties.

"It's a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry," President Barack Obama said from the White House.

Related

Will GM Become 'Government Motors'?

What Businesses Will You Miss Most?

Chrysler Deal Could Avoid Bankruptcy

Chrysler said it will close all its plants starting Monday and they will stay closed until the company comes out of bankruptcy. At least three Detroit-area factories sent workers home Thursday after suppliers stopped shipping parts over fears they would not be paid.

CEO Robert Nardelli announced he would step down when the bankruptcy is complete and take a post as an adviser with Cerberus Capital Management LP, which will give up its 80 percent ownership of Chrysler under the automaker's plan. Vice Chairman Tom LaSorda, who once ran the company when it was owned by the German automaker Daimler, said he would retire.

"A lot of us are scared," said Steve Grabowski, 33, who has worked at a Warren, Mich., parts stamping plant for seven years and was sent home Thursday. "We knew something like this was going to happen, but we didn't think it would be so soon."

Chrysler's bankruptcy filing is the latest step in a drastic reordering of the American auto industry, which has been crushed by higher fuel prices, the recession and customer tastes that are moving away from the gas-guzzling SUVs that were once big money makers.

Lee Iacocca, the retired chairman and CEO who led Chrysler through a government bailout in the late 1970s, said it was a sad day.