May 8 (Bloomberg) -- Chrysler LLC’s dissident secured lenders, a group including OppenheimerFunds Inc. and Stairway Capital Management, gave up their fight against the automaker’s bankruptcy sale of assets to a company run by Fiat SpA.

Chrysler’s non-TARP lenders, as they dubbed themselves, don’t plan to defend their earlier objections to the deal and may withdraw them formally, said Tom Lauria, the White & Case LLP attorney representing the group.

“After a great deal of soul-searching and, quite frankly, agony, they concluded they just don’t have critical mass to withstand the enormous pressure and machinery of the U.S. government,” Lauria said today in an interview.

The lenders’ decision to step aside may smooth Chrysler’s path toward an alliance with Italy’s Fiat, which has the backing of President Barack Obama’s auto task force. Auburn Hills, Michigan-based Chrysler is scheduled to have an auction completed May 27 where Fiat is the lead bidder.

“We are pleased with the decision by the minority secured lenders to withdraw their opposition,” Lori McTavish, a Chrysler spokeswoman, said in an e-mail. “We believe this is in the best interests of all of Chrysler’s stakeholders.”

OppenheimerFunds and Stairway Capital announced separately that they were withdrawing from actively fighting the sale, signaling that the lenders’ group was unraveling. Other lenders included Schultze Asset Management LC, Group G Capital Partners LLC and Foxhill Opportunity Master Fund.

It’s “another important and promising step” toward the goal of putting Chrysler on “a path of viability,” White House Press Secretary Robert Gibbs said.

Status of Claims

The opposition group had argued that a plan to sell selected Chrysler assets to a new company controlled by Fiat for $2 billion violated U.S. law because claims by unsecured creditors, such as a United Auto Workers union health-care trust fund, were preserved ahead of those made by secured lenders.

About 62 percent of the lenders for Chrysler’s $6.9 billion loan, holding 90 percent of the value, agreed to take the cash to extinguish their claims. The holdouts represented by Lauria didn’t yield to a higher offer of $2.25 billion on April 29, and the automaker was put into bankruptcy the next day.

Political Pressure

Lauria had said political pressure on the lenders by Obama, who labeled them “speculators” in an April 30 speech, caused many other objecting firms to abandon the case. With dwindling numbers and no sign that they would prevail in court, it no longer made sense to keep objecting, Lauria said.

OppenheimerFunds was the only mutual fund manager listed among opponents of the government’s Chrysler restructuring plan.

Representative Gary Peters, a Michigan Democrat, welcomed the creditors’ decision to stop resisting the Fiat sale.

“Accepting a fair deal with Chrysler was not only in the nation’s interest, but also in their interest because it was better than they stood to gain in bankruptcy,” Peters said in a statement.

U.S. Bankruptcy Judge Arthur Gonzalez signed an order today setting the bidding procedures for the sale of Chrysler’s assets, after issuing an interim ruling on May 5. Any objections must be made by May 19.

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 8, 2009 16:32 EDT