June 1 (Bloomberg) -- Chrysler LLC won court approval to sell most of its business to a group led by Italy’s Fiat SpA, a deal intended to fire up its idled manufacturing plants and resume an 84-year history of selling American cars.

U.S. Bankruptcy Judge Arthur Gonzalez approved Chrysler’s sale in a ruling last night in Manhattan. The sale faced more than 300 objections. Gonzalez overruled those that weren’t withdrawn or resolved. The approval came hours before General Motors Corp. filed for bankruptcy protection in the same court.

Chrysler is selling itself to an entity owned by Fiat, a union benefit trust, the U.S. Treasury and the Canadian government. The Auburn Hills, Michigan-based company will get $2 billion in cash to distribute to secured lenders holding $6.9 billion in loans. Turin-based Fiat can walk away from the sale if it isn’t completed by June 15, with a one-month extension for antitrust approvals. The company didn’t receive any other bids for its assets, attorneys said.

“Not one penny of value of the debtors’ assets is going to anyone other than” lenders who deserve it, the judge wrote in the 47-page ruling.

The U.S. and Canada “have made the determination that it is in their respective national interests to save the automobile industry, in the same way that the U.S. Treasury concluded that it was in the national interest to protect financial institutions,” Gonzalez said.

Obama Statement

Chrysler has “a new lease on life” as a result of a “substantial” commitment by the U.S. government and “sacrifices from all stakeholders involved,” U.S. President Barack Obama said in a statement. “We said this process would be completed quickly and efficiently, and that’s exactly what has been accomplished today. Tens of thousands of American jobs will be saved as a result of this extraordinary effort.”

The deal gives Chrysler a more competitive wage and benefit structure for workers and retirees, a newly “rationalized” dealer network and access to new technology, Chrysler Chief Executive Officer Robert Nardelli said today in a statement.

Nardelli will resign when the transaction is complete and return to investment firm Cerberus Capital Management as an adviser, he said.

“This has been an extremely challenging chapter in the company’s history for all involved, requiring hard choices and painful sacrifices by all stakeholders,” Nardelli said today in a letter to workers. “Now Chrysler has a tremendous opportunity to start anew and build something special in a global alliance with Fiat.”

Creditor Objections

Chrysler and Fiat asked the bankruptcy court today to allow appeals of the sale order to be heard by the federal appeals court in New York, arguing a slower appeal process through the district court could put the deal in danger.

“Any delay, through appeals to the district court and thereafter to the Court of Appeals, could undo the sale order,” Chrysler attorney Corinne Ball said in the request. The sale “may determine whether an iconic American company survives or disappears.”

Chrysler’s official committee of unsecured creditors and JPMorgan Chase & Co., an agent to Chrysler’s lenders, said in court filings today that they supported the request for a quick appeal.

Chrysler’s businesses in Mexico, Canada and other international operations will be acquired by the newly formed Chrysler Group, according to the statement.

Creditors had argued that the government set an artificially urgent schedule for the deal. Once the sale closes, the eight manufacturing plants Fiat isn’t taking will be liquidated in the bankruptcy. Chrysler’s 22 U.S. factories with about 26,800 hourly workers were shut May 1.

Government Loans

Chrysler’s bankruptcy is being funded by $4.9 billion in loans from the U.S. and Canada and the two governments have agreed to provide about $8 billion in loans to the new company once it emerges from bankruptcy. Obama’s Auto Task Force took a substantial role in negotiating with Chrysler’s creditors, officials have said.

“The underlying argument of many of those opposing the transaction is not against the government entities’ involvement,” the judge noted in the decision.

“Rather, it is the desire to have the governmental entities protect every constituency within the auto industry from economic loss, and not to limit the protection to those interests that the government perceives as being essential to the survival of a successful ‘New Chrysler,’” Gonzalez said.

Ready to Go

Nardelli testified at a May 28 hearing that the company was ready to close the deal as soon as Gonzalez granted approval.

At the end of the May 29 session of the hearing, Gonzalez said he would reserve his decision.

Tom Lauria, a lawyer at White & Case LLP representing Indiana pension funds that are fighting the sale, filed a notice of appeal today. He represents thousands of retired workers, including teachers, police officers and construction workers. Lauria didn’t immediately return a call seeking comment.

At its peak, the group consisted of 30 funds holding more than $1 billion, Lauria has said.

Attorneys for the pension funds argued that the U.S. Treasury violated the Constitution and the terms of Troubled Assets Relief Program through its involvement in restructuring Chrysler. Gonzalez ruled in a separate opinion that the funds don’t have standing to challenge the administration’s use of TARP money.

Gonzalez wrote in his decision that it wasn’t his job to interject himself into “the business judgment of the entity funding the transaction, even if that lender is the government.”

Fiat’s 20 percent stake in the new company could be increased to 35 percent if certain milestones are met.

Looking for Buyers

Before reaching the agreement with the Fiat group, the company sought for more than a year to sell itself or form an alliance with other automakers, Chrysler adviser Robert Manzo of Capstone Advisory Group LLC previously testified.

Since Fiat was the only automaker willing to join with Chrysler, the company’s board “was faced with either accepting the Fiat transaction or liquidating,” Gonzalez concluded.

Chrysler, founded by Walter Chrysler in 1925, filed for Chapter 11 bankruptcy on April 30 after some secured lenders rejected an offer from the U.S. government that would have paid $2.25 billion on the $6.9 billion they are owed.

The filing came after the government refused to fund Chrysler’s effort to reorganize as a standalone company. Chrysler’s U.S. sales plummeted 30 percent in 2008, draining the company of cash and sending it to the edge of collapse before the government gave it the emergency loan in early January.

Secured Lenders

The offer was supported by most of Chrysler’s secured lenders.

Chrysler, in its April filings, listed assets of $39.3 billion and liabilities of $55.2 billion, making it the fifth- largest bankruptcy in U.S. history, according to data compiled by Bloomberg.

Bankruptcy law forbids a sale of assets that is actually a reorganization plan rather than a pure transfer of the property, said David Skeel, a law professor at the University of Pennsylvania and the author of “Debt’s Dominion: the History of Bankruptcy Law in America.”

“If there ever was a stealth reorganization plan, this is it,” he told Bloomberg Radio, noting that the proposed sale determines which creditors get paid and how much.

“By approving this sale, without any reservations, we’ve opened the door for lots of problems in the future,” he said.

The Chrysler asset-sale approval, issued late May 31, has the effect of short-circuiting the process of assets sales and creates the potential for manipulation of the parallel process in the GM case, he said.

The Chrysler ruling has been appealed by some creditors, and a federal court may reverse or adjust terms of the judge’s ruling, Skeel said.

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

To contact the reporter on this story: Christopher Scinta in U.S. Bankruptcy Court in New York at cscinta@bloomberg.net.

Last Updated: June 1, 2009 18:00 EDT