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Scoring the dubious honour becoming the first every member of the Detroit Three to do so, Chrysler LLC will proceed with Chapter 11 bankruptcy protection now that talks with debt holders have broken down, an official in President Obama’s administration told Reuters newsagency.

The news comes as Chrysler also appears close to wrapping up its partnership agreement with Italian carmaker Fiat S.p.A.

At the same time the US administration said President Barack Obama and the federal auto task force would address the Chrysler reorganisation at noon New York time.

Several hours into its final day of a government deadline for reorganisation Chrysler still had not gained the bondholder support it needs to move forward with a restructuring and avoid the first-ever bankruptcy filing by a Detroit Three carmaker.

Talks among those parties and the US Treasury broke down overnight despite a sweetened Treasury offer.

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An administration official with knowledge of the talks said the holdout creditors were provided a final opportunity to approve an increased offer of US$2.25 billion, up from US$2 billion, but failed to agree to the offer.

“Their failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward,” the official told Reuters newsagency.

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Prospects for an alliance with Fiat were enhanced when UAW workers voted to approve concessions late Wednesday.

The signals about how the discussions between Chrysler and Fiat were going were mixed with Italian newspaper Corriere Della Serra reporting that a deal with Fiat had been signed, but Fiat later denied this.

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While getting a Fiat deal done is a key part of Chrysler’s historic final day, bondholders still hold the key.

“I think there is reasonable optimism that (a deal between Fiat and Chrysler) can be closed with an announcement perhaps even by President Obama today,” Italian Industry Minister Claudio Scajola told Italian television on Thursday.

Chrysler, owned by Cerberus Capital Management LP, is among the world car industry’s weakest players, but earlier President Obama said concessions by Chrysler’s unions and its major bank lenders had made him more hopeful than a month ago that the carmaker could be made viable.

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The White House has set a series of aggressive targets for Chrysler in order to justify another US$6 billion in investment on top of Us$4 billion in emergency loans the government has extended since the start of the year.

Putting Chrysler and Fiat together would give the combined group annual sales of some 4.16 million vehicles, making it equal with Hyundai and behind Toyota, General Motors, Volkswagen and Ford.

Fiat CEO Sergio Marchionne thinks a carmaker needs to produce at least 5.5 million cars a year to survive.

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Under the terms of the proposed partnership, Fiat would get access to the US market and a minority stake in Chrysler in exchange for the technology to make small cars and access to overseas markets. No cash would change hands.






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