The White House has announced Chrysler's entry into bankruptcy protection today, with talks between the Treasury Department and the carmaker failing to reach an agreement on the last day before the auto industry task force’s restructuring deadline. No further talks are planned but President Barack Obama has announced that a deal between Chrysler and Fiat will go forward.

Obama's speech on Chrysler's bankruptcy included both praise for its past as a central part of the global auto industry and harsh criticism of its recent failures. Criticism was also aimed at those creditors unwilling to bargain with Chrysler, instead holding out on the chance that the government would step in and bailout the carmaker. Obama has chosen a 'surgical' bankruptcy to save Chrysler and to avoid rewarding those creditors for their behavior.

"While the administration was willing to give creditors a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler's future success," an administration official explained to The Detroit News. Instead, the carmaker will enter bankruptcy courts where it will attempt to wipe away some of its debts and liabilities.

The carmaker will file almost immediately for bankruptcy in New York under Section 363(b) of Chapter 11 of the bankruptcy code, which allows for a "quick rinse" or "surgical" bankruptcy. Any good assets would be auctioned - likely purchased by the U.S. Treasury - while the bad assets would be left behind in bankruptcy court to be liquidated. The entire process will take about 60 days.

Bob Nardelli, Chrysler's CEO, has also announced that he will step down from his post once the company emerges from Chapter 11 proceedings. That fits well with the expectation that Fiat's chief Sergio Marchionne could take over the top spot at the Pentastar brand.

“Now is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat,” said Nardelli. “I will work closely with all of our stakeholders to see that this new company swiftly emerges with a successful closing of the alliance.”

As for the restructured Chrysler, the U.S. government and Fiat are expected to announce a new board of directors once the alliance deal goes through, and most of them would be independent directors not currently affiliated with either Fiat or Chrysler. The new board would then select a CEO.

Under the new set-up, the UAW will become the majority shareholder with a 55% stake, while Fiat will be reserved up to 35% and the government the remaining 10%.