Chrysler may seek bankruptcy protection as lenders refuse to write off debt

Chrysler LLC, which won overwhelming support from the workers union for its restructuring plan, is reported to have met with creditor resistance over debt write-off. The carmaker may now apply for bankruptcy protection to complete its restructuring, reports suggested.

The US Treasury was also involved in negotiations with a group of hedge funds to ease Chrysler's debt burden and facilitate an alliance with Fiat SpA, in order to ensure that Chrysler survives.

The United Auto Workers members, meanwhile,  overwhelmingly voted for a concessions deal with the struggling US automaker, with 82 per cent of the production workers and 80 per cent of skilled workers backing the agreement, the union said in a statement.

US Treasury had offered Chrysler's secured lenders $2.25 billion in cash in exchange for forgoing their combined loans of around $7 billion. While Chrysler's biggest banks had accepted the offer, three hedge funds held out, reports quoted official source as saying.

The US government and Chrysler are now in last-ditch efforts to arrive at a viable business plan, without which Chrysler would have to attempt an overhaul with support from the bankruptcy court.

Chrysler has been kept alive with $4 billion in government bailout funds since December and the carmaker now has the support of workers and a pledge pledge from Fiat SpA  for small car production at one of Chrysler's plants.

Chrysler, which is 80 per cent-owned by private equity firm Cerberus Capital Management LP, has time until the end of Thursday to strike debt waiver deals and slash labor costs for entering a alliance with Italy's Fiat.

President Barack Obama is expected to make statement on Chrysler later in the day.