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Chrysler filed for bankruptcy protection Thursday and announced it will temporarily halt most of its vehicle production while it completes a deal with Italian carmaker Fiat designed to revive its tattered fortunes.

President Obama said he had long hoped to stave off bankruptcy for the nation's third-largest automaker, but said Thursday that it had become clear that a holdout group of creditors wouldn't budge on proposals to reduce Chrysler's $6.9 billion in secured debt.

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Obama attacked a group of hedge fund and private investment managers for refusing to share the financial sacrifices made by the United Auto Workers, banks, Fiat and other stakeholders to set the stage for the Fiat merger without a bankruptcy filing. Clearing those debts was a needed step for Chrysler to restructure by a government-imposed Thursday deadline.

"No one should be confused about what a bankruptcy process means," President Obama said in a midday announcement. "This is not a sign of weakness but rather one more step on a clearly chartered path to Chrysler's revival."

Chrysler hopes to emerge from bankruptcy in as little as 60 days under the new partnership with Fiat. The government, which has already poured $4 billion in loans into Chrysler, would provide up to $8 billion more to carry the company through bankruptcy, said senior administration officials speaking on condition of anonymity. The government will also help appoint a new board of directors.

But Chrysler's situation remains fraught with peril. The hedge funds and other investors could significantly delay the hoped for swift transformation of the company if the New York bankruptcy court judge is sympathetic to their arguments or opens the door to reorganization proposals from other creditors.

The course of the Chrysler bankruptcy will be watched closely by GM workers, dealers and investors. A similar standoff with private holders of GM debt could lead to a similar bankruptcy with similar perils.

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