In the wake of Chrysler's announcement that it plans to file Chapter 11 bankruptcy, the automaker has reached an alliance with Fiat SpA to form a new company.

"It will allow Chrysler and Fiat to fully optimize their respective manufacturing footprints and the global supplier base, while providing each with access to additional markets," states a news release.

Fiat powertrains and components also will be produced at Chrysler manufacturing sites.

"This partnership transforms Chrysler into a vibrant new company with a wealth of strategic advantages,” says Bob Nardelli, chairman and CEO of Chrysler. “It enables us to better serve our customers and dealers with a broader and more competitive lineup of environmentally friendly, fuel-efficient high-quality vehicles. Benefits to the new company include access to exciting products that complement our current portfolio, technology cooperation and stronger global distribution."

Chrysler initiated discussions with Fiat more than a year ago to develop plans for a global product alliance. Over the past several months, these discussions have evolved and expanded.

“We want to personally assure everyone that the new company will produce and support quality vehicles under the Jeep®, Dodge and Chrysler brands as well as parts under the Mopar® brand," Nardelli adds. "Chrysler employees will become employees of the new company. Chrysler dealerships remain open for business serving our customers. All vehicle warranties will be honored without interruption and consumers can continue to purchase our vehicles with complete confidence."

Chrysler today filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York.

“Even though total agreement was not possible, I am truly grateful for all that has been sacrificed, on the part of many of Chrysler’s stakeholders to reach an agreement in principle with Fiat,” says Nardelli.

Chrysler also will file a motion under Section 363 of the Bankruptcy Code requesting the swift approval by the court of the agreement with Fiat and the sale of Chrysler’s principal assets to the new company.

Nardelli, who has been leading Chrysler since August 2007, also announced to Chrysler LLC’s Board of Management and the U.S. Treasury his plan to leave the company following the emergence of the new company from Chapter 11 and the completion of the alliance with Fiat.

He plans to return to Cerberus Capital Management LP as an advisor.

During the restructuring process, the government will provide sufficient debtor-in-possession (DIP) financing to allow continuation of “business as usual.” Also, The Obama administration has referred to a “surgical bankruptcy,” a process that could potentially only take 30 to 60 days to complete. The automaker plans to use Section 363 of the bankruptcy code to sell assets, rid the company of liabilities and restructure its debt, creating a new Chrysler.

Chrysler’s Mexican, Canadian and other international operations are not part of any bankruptcy filing.

As part of the restructuring and with the backing of the U.S. Treasury, we have reached an agreement in principle with GMAC to become the preferred lender for Chrysler dealer and consumer business. GMAC will be able to offer the best long-term finance options for Chrysler dealers and customers with standard rate installment products.

When the transaction is completed, the Voluntary Employee Beneficiary Association (VEBA) will own 55 percent of the new company and the U.S. and Canadian governments will own proportionate shares of a 10 percent stake.

Fiat will initially hold a 20 percent ownership stake in Chrysler and will have the right to increase its ownership stake an additional 15 percent in three increments as it meets the following criteria: 5 percent for bringing a 40 mpg vehicle platform to Chrysler to be produced in the U.S.; 5 percent for providing a fuel-efficient engine family to be produced in the U.S. for use in Chrysler vehicles; and 5 percent for providing Chrysler access to its global distribution network to facilitate the export of Chrysler vehicles. Fiat cannot become a majority owner until after all U.S. government loans have been completely repaid, Chrysler adds.

As a part of the restructuring, most manufacturing operations will be temporarily idled effective Monday, May 4. Normal production schedules will resume when the transaction is completed, which is anticipated within 30 to 60 days.