May 1 (Bloomberg) -- Chrysler LLC should leave bankruptcy in a month or two with a slimmed-down balance sheet, new management, a global partner, fewer dealers, lower labor costs and maybe even a new name.

If a quick bankruptcy is successful, it will accomplish many of the things executives for the automaker have been trying to do for decades. None of it guarantees success because the new Chrysler still has to sell cars, as well as pickups, Jeeps and minivans. Its U.S. sales are down 46 percent this year.

The automaker and the U.S. government plan to use a surgical bankruptcy to sell Chrysler’s best assets, such as its Dodge Ram pickup, to a new company with streamlined costs and debt, which would team up with Fiat SpA. The alliance would create the world’s sixth-largest car manufacturer and in turn the new company would also bring some of Fiat’s small cars to the U.S.

“Chrysler and Fiat have formed a partnership that has a strong chance of success,” U.S. President Barack Obama said yesterday. The filing for protection from creditors would give the company “a new lease on life,” he said.

“It’s a partnership that will save more than 30,000 jobs at Chrysler and tens of thousands of jobs at suppliers, dealers, and other businesses that rely on this company,” Obama said.

Lenders Hold Out

It appeared Chrysler might escape bankruptcy as recently as April 29, after four major lenders holding 70 percent of $6.9 billion in secured debt agreed to a $2 billion cash offer to eliminate their claim. A group of investment funds in the 46- lender group held out, turning down a sweetened $2.25 billion offer from the U.S. Treasury, which Obama said forced the filing.

In bankruptcy, Chrysler will ask Judge Arthur Gonzalez to allow the sale of its assets with the consent of the majority of the creditors’ claims, forcing the dissident lenders to come along.

Those creditors intend to object to the company’s reorganization plan, a person familiar with their thinking said. That might thwart Obama’s goal of finishing a bankruptcy within 60 days to put a viable carmaker quickly into the market.

Chrysler’s lead lawyer, Corinne Ball, 55, of New York-based Jones Day, is said to be a brilliant strategist, capable of reaching agreements with opponents.

“It has the potential to be good,” said Jim Hall of 2953 Analytics in Birmingham, Michigan. “The question is: What is Chrysler going to be able to do between now and when the Fiat products are available?”

New Management

The first Fiat vehicle built in the U.S. with a Chrysler brand hood ornament is 18 months away, said Tom LaSorda, a company president who announced his retirement yesterday in a call with reporters. Chrysler has a stream of new cars it developed on its own expected next year in the U.S., including a new Jeep Grand Cherokee and Chrysler 300 sedan.

Long before Fiat’s cars will be riding on U.S. roads, the Turin, Italy-based automaker’s management will be running the company. A new nine-member board of directors will be created with three chosen by Fiat. The board will choose a new chief executive officer to replace Bob Nardelli after the bankruptcy when he returns to owner Cerberus Capital Management LP.

Marchionne’s Role

Fiat, which will operate the company, already has in mind the management structure for Chrysler, a person with direct knowledge of the situation said. Marchionne will have a close role in managing the company, said the person, who declined to be named because the matter is private.

Marchionne had said in an April 15 interview that he would be willing to serve as CEO if asked.

“There certainly is going to be some Fiat officer, most likely Marchionne is going to take the helm,” said Marino Marin, managing partner of Gruppo, Levey & Co., an investment banker who has worked has with Fiat.

Fiat will hold an initial stake of 20 percent in the new company in exchange for licensing its technology, and may raise its stake to 35 percent by building a car in the U.S. that gets 40 miles per gallon, putting an engine in a U.S. plant and selling Chrysler vehicles at its dealerships abroad.

After all government loans are repaid, Fiat has the option to purchase an additional 16 percent, to take a 51 percent majority. A trust fund to pay for health care for United Auto Workers retirees will start with 55 percent ownership of the company before it sells any shares. The U.S. government will hold 8 percent and the Canadian government 2 percent.

Nissan Alliance

Fiat’s stake may cost Chrysler an alliance with Nissan Motor Co., Japan’s third-largest carmaker. Nissan said it was reviewing the terms of agreement to build small cars for Chrysler in exchange for pickups from the U.S. company. The two companies had struck the agreement last year to broaden their product offerings without incurring extra development costs.

Chrysler will get $8.08 billion in loans from the U.S. government and $2.42 billion from Canada and Ontario.

The UAW itself doesn’t have any stake in the company. The trust is run by an independent board, said a senior Obama administration official.

After bankruptcy, Chrysler’s finance company will be GMAC LLC. Its current lending arm Chrysler Financial will continue to service existing loans and gradually wind down its operations.

GMAC will get a capital infusion from the U.S. government in order to finance Chrysler customers and inventory sales to dealerships.

Canceling Contracts

Chrysler will also pare down its dealership base by canceling contracts in bankruptcy.

“We do not have a concrete list yet. It won’t be a huge catastrophic number,” said Jim Press, president and vice chairman of Chrysler in a call with reporters today. “There will be a noticeable reduction in the number of dealers going forward.”

Cerberus, which agreed to give up its ownership to allow for the carmaker’s restructuring, retains ownership of Chrysler Holding, and Chrysler Financial. Those companies aren’t included in the bankruptcy filing.

Chrysler Financial received a $1.5 billion, five-year loan from the U.S. Treasury, prompting the automaker to offer no- interest financing to buyers of some of its vehicles.

Cerberus bought 80 percent of Chrysler from DaimlerChrysler AG in 2007 for $7.4 billion, its largest investment, with unnamed partners. This week it took Daimler AG’s remaining stake, making Cerberus the sole owner prior to the bankruptcy filing.

Idling Production

Chrysler is idling most of its factories starting May 4 while in court because suppliers are halting shipments.

Regular production may resume when the company emerges or sooner if it resolves supply issues, LaSorda said.

There will be more capacity reductions for Chrysler, LaSorda said, without detailing what plants or shifts may be cut. Chrysler’s bankruptcy filing says the automaker plans to leave eight plants to be liquidated in Chapter 11 after its good assets are sold to the new government-financed automaker.

The filing doesn’t say which plants, though it likely includes several that Chrysler has already closed, including factories near St. Louis and in Newark, Delaware.

No job cuts were announced yesterday. Chrysler has shed 35,000 jobs, Nardelli said, leaving about 54,000.

Earlier Comebacks

Founded in 1925 by Walter Chrysler, the Auburn Hills, Michigan-based company began its history with a reorganization of the Maxwell Motor Co. Known for high-technology vehicles in the 1930s, it produced models that included Imperial, DeSoto, and Valiant before slimming down to a lineup of Chrysler, Dodge and Jeep vehicles.

The U.S. government provided Chrysler with $1.5 billion in loan guarantees to prevent a bankruptcy in 1979. CEO Lee Iacocca helped lead the company back to profitability, sparked by the pioneering Dodge Caravan minivan and his personal ad pitches.

“If you can find a better car, buy it,” he told customers in advertisements in the 1980s.

Chrysler Corp., as it was known then, repaid its $1.2 billion in loans in 1983, ahead of schedule.

Toyota Motor Corp. overtook Chrysler in U.S. sales in 2006, by which time Asian carmakers had 42 percent of that market.

Now Chrysler becomes the first U.S. automaker to follow dozens of suppliers into bankruptcy in recent years. They include Delphi Corp., Dana Corp., Dura Automotive Systems Inc., Collins & Aikman Corp., Tower Automotive Inc. and Lexington Precision Corp.

What will the new Chrysler be named? Nardelli said he didn’t know, though he expected it would include the founder’s name.

“If you are considering buying a car, I hope it will be an American car,” Obama said. “I want to remind you that, if you decide to buy a Chrysler, your warranty will be safe, because it is backed by the United States government.”

The case is In re: Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

Last Updated: May 1, 2009 00:57 EDT