WASHINGTON AND LOS ANGELES — President Obama's decision to save Chrysler by pushing it into bankruptcy Thursday puts the major U.S. automaker in risky, uncharted territory and could portend a similar outcome for General Motors Corp. as it races to meet its own government restructuring deadline.
The administration is betting Chrysler's future on the company's ability to emerge quickly from what can be a complex and unpredictable legal process. Obama also is tying the company's fate to Fiat, an Italian owner that may not be able to crack the code of U.S. car buyers.
The Chapter 11 filing in a New York court provides a high-stakes test of whether people will buy cars from a company in bankruptcy even if the government stands behind the warranties, as the president has promised to do.
Obama spoke about bankruptcy Thursday as an unfortunate but necessary step. He blamed the move on hedge funds and investment firms -- already highly unpopular for their role in the financial crisis -- that would not agree to sharply reduce what the automaker owes them.
"I know that there are some who will insist that bankruptcy, even for these limited purposes, is a step that should not have been taken," Obama said. "But it was unsustainable to let enormous liabilities remain on Chrysler's books, and it was unacceptable to let a small group of speculators endanger Chrysler's future by refusing to sacrifice like everyone else."
Some of the debt holders blasted back, saying they had a responsibility to their investors to recover more of what they are owed. They complained of being treated worse than other creditors.
Obama's decision sends a sharp message to Chrysler's bigger rival, GM, and its stakeholders as their June 1 deadline looms: He is not afraid to resort to bankruptcy if needed. GM has acknowledged it may have to restructure in court.
The White House's deep involvement in the Chrysler bankruptcy proceedings means Obama will be blamed if it turns out badly by hurting union members and retirees, said Neil Newhouse, a Republican pollster.
"After 100 days in office, this is another sign that he is taking ownership of the nation's economy," he said.
Administration officials said they were confident that the bankruptcy, which is necessary to pave the way for the Fiat alliance, would be completed in 30 to 60 days.
