WASHINGTON AND LOS ANGELES — Bankruptcy loomed for Chrysler late Wednesday, but an alliance with Fiat appeared increasingly likely as the U.S. automaker neared completion of terms demanded by the Obama administration to continue getting billions of dollars in taxpayer support.
President Obama said he was "very hopeful" that "a viable Chrysler" would emerge from the continuing government-led restructuring process.
"The details have not yet been finalized so I don't want to jump the gun, but I'm feeling more optimistic than I was about the possibilities of that getting done," he said during Wednesday's news conference.
The developments have eased concerns about Chrysler's near-term survival, analysts said. But Obama said his administration could still decide to shepherd the company through bankruptcy to prepare it for an alliance with Italian automaker Fiat.
Such court oversight would allow Chrysler to resolve some outstanding issues, such as closing down struggling dealerships and getting many bondholders to take significantly less than they are owed.
Chrysler also could be forced into bankruptcy court today if no deal can be reached with the balking creditors. Discussions between them, Chrysler and the government were said to be contentious.
Talks involving Fiat, meanwhile, continued leading up to today's midnight deadline set by Obama. Chrysler is required to restructure, reduce its long-term debt and find a partner to help the struggling automaker return to profitability.
"Chrysler will survive and avoid liquidation," said a person close to the negotiations, who was not authorized to speak publicly. "Whether that happens in or out of bankruptcy remains uncertain at this point."
The deal would stave off immediate collapse for Chrysler by giving it access to at least $6 billion in government money it needs to survive.
But it's unclear how an alliance with Fiat, which has already tried to sell cars in the U.S. market only to retreat in the mid-1980s, would provide long-term staying power.
Given the hurdles of meeting U.S. safety and environmental regulations, it would take at least two years for Fiat vehicles to appear in domestic showrooms. Even then buyers might not be waiting in line.
"They didn't pull out of this market for nothing," Karl Brauer, editor in chief of auto website Edmunds.com, said of Fiat. "When they left, Fiats weren't seen as the greatest cars on the planet by any means."
