Chrysler Seeks OK for Sale of Assets to Fiat

By Bree Fowler

NEW YORK -- The future of Chrysler hangs in the balance as it heads to court Wednesday to ask a bankruptcy judge for permission to sell the bulk of its assets to a group headed by Italy's Fiat in hopes of saving itself from liquidation.

Attorneys for Chrysler maintain that the deal with Fiat is the company's only hope to avoid being sold off piece by piece, but the agreement remains controversial with more than 100 objections to the sale filed by the automaker's dealers, bondholders, former employees and others.

However, if the deal doesn't close by June 15, Fiat could back out.

Also Wednesday, fellow U.S.-based automaker General Motors is set to announce the results of a debt swap offer that could decide whether it can restructure out of court or will follow its automaking rival into bankruptcy protection.

GM gave the holders of some $27 billion of its bonds until midnight Tuesday to exchange their debt for a 10% stake in a new GM, and said it will announce the results Wednesday morning. If bondholders representing 90% of GM's unsecured debt -- about $24 billion - don't agree to the exchange, GM has said it will file for bankruptcy protection. Bondholders have balked at the proposal from the start, saying it gives them too small a stake for the amount they are owed.

Automakers worldwide are struggling as the global recession has reduced demand for new vehicles. But GM and Chrysler have been particularly hobbled by promises to cover the health and pension costs of tens of thousands of unionized retirees -- along with recent record-high gasoline prices that reduced demand for their low-mileage trucks and sport utility vehicles.