The New York Times reported that US President Mr Obama forced Chrysler into federal bankruptcy protection on Thursday so it could pursue a lifesaving alliance with the Italian automaker Fiat, in yet another extraordinary intervention into private industry by the federal government.

Mr Obama announced a plan that would allow the United Automobile Workers, through their retirement plan, to take control of Chrysler, with Fiat and the United States as junior partners. The government would lend about USD 8 billion more to the company, on top of the USD 4 billion it had already provided.

The arrangement came after an intensive round of White House sponsored negotiations among the Treasury Department, the union and Chrysler’s executives and creditors. After working through the night, a small group of debt holders balked at Mr. Obama’s final terms, leading the president to decide that bankruptcy could not be averted.

It was a stark moment, and one unseen in modern times, as the fledgling president deepened his involvement in a struggling but iconic American company. Chrysler, which Mr. Obama called “a pillar” of the industrial economy, invented the minivan and owns the Jeep brand.

With Thursday’s filing, Chrysler became the first major American automaker to seek bankruptcy protection since Studebaker did so in 1933.

Chrysler said its factories would go mostly idle starting Monday, and remain so for the bulk of the process. Auto workers will receive about 80% of their base pay during the shutdown.

(Sourced from NY Times)