May 28 (Bloomberg) -- Chrysler LLC Chief Executive Officer Robert Nardelli said in a court filing that a sale to a group led by Fiat SpA is the best deal for all involved in the automaker’s bankruptcy.

“The sale would strengthen Chrysler for the long term, benefiting all constituents, including U.S. taxpayers, employees, creditors, dealers, suppliers and secured lenders,” Nardelli wrote in the filing submitted yesterday before a court hearing to consider the transaction. “Our sole aim was to benefit everyone.”

Court approval of the $2 billion offer from a group including Fiat, a United Auto Workers union benefit trust and the U.S. and Canadian governments would enable the reorganized company to begin building cars again. Chrysler has said it needs to close the sale quickly to preserve business value.

Yesterday’s hearing in U.S. Bankruptcy Court in New York to approve the sale is scheduled to resume today at 10 a.m. More than 300 objections or responses have been filed.

A group of Indiana state pension and construction funds that hold a portion of Chrysler’s secured debt are objecting to the sale, saying their claims are being improperly subordinated and that the Treasury Department improperly influenced the Chrysler bankruptcy.

While cross-examining former Chrysler executive Tom LaSorda and financial adviser Robert Manzo, attorneys for the funds focused on e-mails exchanged among Chrysler advisers, lawyers and Treasury officials.

Bridging Gap

Manzo testified that, on the day before Chrysler filed for court protection, he asked Treasury officials what else the company could do to bridge the gap between what the secured lenders wanted and what was being offered to keep the company out of bankruptcy. Manzo said he told Treasury officials that he could find $250 million in savings to bridge the gap.

He said Matthew Feldman, of the Treasury’s Auto Task Force, responded in an e-mail, “I’m not talking to you” and refused his offer.

Feldman later said that, after the Treasury protected Chrysler’s management and board, he didn’t appreciate Manzo putting him in a position to have to bend to “a terrorist like Lauria,” according to an e-mail read yesterday in court, referring to a lawyer for the so-called non-TARP lender group that objected to the Fiat deal.

Treasury’s Efforts

“The task force made every responsible effort to avoid bankruptcy, including a last-minute effort to achieve 100 percent consent of the senior lenders,” the Treasury Department said in an e-mailed statement.

The pension funds lost a bid on May 26 to have a federal district judge take control of the automaker’s Chapter 11 reorganization.

U.S. District Judge Thomas Griesa refused the request. Griesa said the funds should have the right to appeal whatever decision Gonzalez makes on the sale process.

Manzo’s testimony was followed by that of Fiat executive Alfredo Altavilla, who said the Italian automaker plans to name Sergio Marchionne, its chief executive officer, former Exxon Mobil Corp. Vice Chairman Lucio Noto and himself to the board of a new Chrysler company after bankruptcy.

“This is a strategic deal for Fiat,” Altavilla, CEO of Fiat Powertrain Technologies, said. “We are here for the long run.”

Fiat Negotiations

Fiat, based in Turin, Italy, strongly recommended that Chrysler file bankruptcy when it was negotiating the deal, Altavilla testified. If Chrysler hadn’t sought court protection, “in all likelihood we would have not” agreed to the deal, he said.

Altavilla said Fiat would reconsider the deal if it isn’t completed by June 15 or if the assets aren’t transferred free and clear of liens such as tort claims. The transaction could close within a few days of the court’s approval, he said.

LaSorda testified he had traveled the world looking for a partner for Chrysler and, while he had gotten deep into negotiations with Nissan Motor Co. and Kia Motors Corp., no final terms were negotiated. He said he opposed a deal with General Motors Corp.

Though Fiat isn’t contributing any cash to the deal, it’s the only option for Chrysler other than liquidation, he said.

“We couldn’t bring anyone to the altar to bring us 5 cents,” LaSorda said. “We were very, very fortunate we got Fiat.”

Nardelli is expected to testify in favor of the sale today, lawyers said.

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

To contact the reporters for this story: Christopher Scinta in New York at cscinta@bloomberg.net; Lindsay Fortado in London at lfortado@bloomberg.net.

Last Updated: May 28, 2009 00:01 EDT