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Chrysler bankruptcy: speed is of the essence

Damage to the economy may be limited so long as bankruptcy is handled quickly. Obama is confident; others are skeptical.

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President Obama spoke about Chrysler and the auto industry as he stood with his auto task force at the White House on Thursday. “I am supporting Chrysler’s plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success,” he said in a statement.

Jim Young/Reuters

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Chrysler’s road to recovery has taken a new turn: bankruptcy court.

After negotiations with some of its debtholders broke down Wednesday night, a judge in New York will now try to sort out the complex financial affairs of America’s No. 3 domestic automaker.

Even though the company couldn't avoid bankruptcy, the White House, which has been the lead broker in the negotiations, acted as if it had won a hard-fought victory since it garnered substantial concessions from most of Chrysler's lenders and the unions. Because of those concessions, the company will be in and out of bankruptcy court within two months, the White House maintains.

If the bankruptcy is indeed short, the damage to the economy may be limited, analysts say. For many Americans, the main difference they will notice in their town could be a dealer shutting down, since Chrysler can use the bankruptcy process to pare down its dealer base.

The bankruptcy was announced Thursday by President Obama – an indication of its political importance to the White House.

“I am supporting Chrysler’s plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success,” said the president in a statement. “No one should be confused about what a bankruptcy filing means. This is not a sign of weakness, but one more step on a clearly charted path that Chrysler provided.”

Chrysler will continue to try to sell cars during the bankruptcy process and will receive up to $3.5 billion in additional funding from the US government. It will continue to honor its warranties. It is also charging ahead with a plan to ally with Fiat, the large Italian automaker, which is to provide the company with the technology to produce fuel-efficient vehicles.

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