DETROIT — Chrysler, the third-largest American auto company, filed for bankruptcy protection Thursday and entered into an alliance with the Italian automaker Fiat in a bid for survival.
The bankruptcy case, which government officials envisioned as a swift, “surgical” process, was filed in United States Bankruptcy Court in New York, with the first hearing scheduled for Friday morning.
“I have every confidence that Chrysler will emerge from this process stronger and more competitive,” President Obama said during a noontime appearance at the White House.
The president emphasized the speed with which the administration expected the bankruptcy process to be completed, saying that it would be “quick, official and controlled” and that the lives of those who work at Chrysler or live in communities where the company has its operations would not be disrupted. The end result would be a new version of Chrysler that would emerge from bankruptcy without liabilities, like debt and legal obligations, faced by the company now.
United States government officials estimated that the bankruptcy case could be as short as 30 to 60 days, but it may not proceed quite that swiftly. Court documents, filed by Chrysler in New York on Thursday afternoon, included a schedule that showed the company expected to present a reorganization plan on Aug. 28, or four months from now.
Normally, a judge allows creditors time to comment on a company’s plan, and present alternatives or list objections.
At the same time, Chrysler and Fiat signed an agreement that calls for Fiat to take part in running Chrysler. The Italian automaker will provide technical operations, and build at least one vehicle in a Chrysler plant. Fiat did not put up any financing as part of the agreement.
Mr. Obama said the partnership with Fiat “will give Chrysler not only a chance to survive but to thrive in the global auto industry.” He said it was made possible by the series of sacrifices by Chrysler stakeholders, like the United Automobile Workers union, and said more sacrifices were in store.
But the president was pointedly critical of investment funds that rejected the government’s settlement offer, saying they hoped to benefit from the sacrifices of others while making none of their own. “I don’t stand with them,” he said in a stern tone.
In an interview on CNBC, Chrysler’s chief executive, Robert L. Nardelli, said he would leave Chrysler after it emerges from bankruptcy protection. He said Chrysler would be run by a new nine-member board, including three representatives from Fiat. The board will select a new chief executive. Mr. Nardelli said that the government did not ask him to leave, but that he felt it would be appropriate to do so.
Chrysler workers, suppliers and union officials, who have already lived through rounds of layoffs and continual uncertainty about their futures, were not happy to see the bankruptcy filing, but said they hoped that the automaker now had a better shot at survival.
“We’ve lost a lot of people already,” said John Grosjean, who sells ergonomic equipment to Chrysler factories and was among those in Auburn Hills, Mich., watching President Obama’s noontime announcement. “We’ll see where all this goes, but I have a lot of hope. It’s good to see the government in there trying to make this thing work.”
The bankruptcy filing could serve as a preview of what a filing by General Motors might look like. G.M., which like Chrysler received federal assistance last year, faces a June 1 deadline for its own restructuring.
Chrysler said that as part of the restructuring, it would idle most manufacturing operations beginning Monday, and resume production “when the transaction is completed, which is anticipated within 30 to 60 days.”
A senior White House official who laid out the Chrysler bankruptcy plan said the government would provide debtor-in-possession financing in a range of $3 billion to $3.5 billion, so the company can continue to operate normally.
Once Chrysler restructures, the company would receive $4.5 billion in financing to restart its operations, for total American government support through the bankruptcy process and afterwards of up to $8 billion.
That is $2 billion more than Mr. Obama initially said the company would receive if it successfully reached a deal with Fiat.
Chrysler has already received $4.5 billion from the government, under a bailout plan put into effect by the Bush administration in late December, after Congress rejected legislation that would have provided federal aid.
A separate bankruptcy proceeding is anticipated in Canada, where court oversight may be tighter and creditors, notably dealers, may have more clout.
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In a statement, the governments of Canada and the Canadian province of Ontario said they would provide Chrysler with $2.42 billion in financing and hold a 2 percent stake in the company. The two governments will also appoint a director.
“I want to thank President Obama and the U.S Automotive Task Force for their close cooperation with Canada on this challenging issue,” Prime Minister Stephen Harper said in the statement. “Thanks to our joint efforts, there is now a road ahead to a stronger Chrysler.”
Chrysler produces all of its minivans and large rear-wheel-drive cars at two assembly plants in Ontario and operates a small casting plant in Toronto. President Obama had set a Thursday deadline for Chrysler to conclude a deal with Fiat, and to resolve issues with the U.A.W. and its creditors.
On Wednesday, union members approved contract changes with Chrysler that will mean pay and benefit cuts, and their contract is expected to remain in effect during the bankruptcy. “No judge is going to override that kind of support,” the administration official said.
But Chrysler and the Treasury were unable to reach agreements with all the holders of $6.9 billion in company bonds. A number of investment funds balked at a government offer to pay $2.25 billion in cash for the debt, an offer that was sweetened after four major banks agreed to an earlier offer of $2 billion.
White House officials said the failure to reach agreement with lenders was the reason why President Obama decided Chrysler should go through the bankruptcy process.
However, dealing with the leaner Chrysler will also benefit Fiat.
White House officials said some of Chrysler’s 3,600 dealers in the United States are expected to close, and Chrysler Financial, the company’s lending arm, will cease providing loans for new Chrysler cars and trucks. Instead, GMAC, the financing arm partially owned by General Motors, will take over lending to Chrysler dealers.
The administration said it did not expect significant white or blue-collar job cuts as a result of the bankruptcy. Chrysler suppliers can also expect their contracts will be honored, although the company would have the right under bankruptcy protection to cancel them.
David DeMoss, president of U.A.W. Local 1435 in Perrysburg, Ohio, which represents 750 workers at Chrysler’s Toledo machining plant, said he was disappointed by the filing, but hoped it would kindle a turnaround for Chrysler.
“Our members feel like they’ve done what they can do,” Mr. DeMoss said. “Everything else is out of our control. Most people feel pretty optimistic about Fiat coming in. At least it’s a ray of hope.”
Last-minute efforts by the Treasury Department to win over resistant Chrysler debtholders failed Wednesday night, and the administration’s frustration was evident in President Obama’s remarks. .
But a group of Chrysler’s secured lenders asserted that the administration was skirting bankruptcy laws by forcing them to take a larger loss on their debt than other stakeholders in the company. They said their proposals to restructure Chrysler had been ignored by the government.
“The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well-being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades,” the group, which calls itself the Committee of Non-TARP Lenders, said in a statement.
Members of the committee include units of Oppenheimer Funds, Perella Weinberg Partners’ Xerion Capital Fund and Stairway Capital Management. The funds emphasized that their investors were major pension funds, teachers’ unions and school endowments.
The lenders said they have been forced to negotiate through a group of big banks that have accepted government bailout money and are reticent to push back against the government’s proposal. They are particularly upset that the United Auto Workers will receive more for their debt even though the secured lenders should legally be paid before the union.
Many of the holdout lenders, primarily distressed-debt hedge funds who bought portions of Chrysler’s $6.9 billion of bank debt at a discount, will probably argue that they have the first claim to the carmaker’s assets that were pledged for those loans, according to people briefed on the matter.
They argue that they would see greater recovery in a liquidation of the car giant, which they contend would yield about 65 cents on the dollar. The most recent plan proposed Wednesday by the Treasury Department and Chrysler’s four main bank lenders — JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — would have given the creditors about 33 cents on the dollar.
The four big banks own 70 percent of Chrysler’s secured debt.
Contributing reporting were Ian Austen, Nick Bunkley, Jack Healy, Zachery Kouwe, Michael J. de la Merced, Jim Rutenberg and Bill Vlasic.