Chrysler Merger Paves Way for Auto-Industry Makeover

Italian automaker Fiat put its proposed merger with Chrysler in full gear this morning, closing its acquisition of the company's assets shortly after the Supreme Court cleared the way for Chrysler to exit bankruptcy court. Fiat now has a 20 percent stake in the company, and that can go up to 35 percent if certain goals are met. The swift pace with which the deal went through the court system is good news for the Obama administration, which plans to rev up the American auto industry by pushing both Chrysler and General Motors through quick and efficient restructuring under Chapter 11 bankruptcy.

Fiat and Chrysler hit a temporary roadblock earlier this week after the Supreme Court delayed the sale to review challenges from three Indiana state funds and several consumer groups that argued that they and other lenders deserved better treatment by the bankruptcy court. Nine justices declined to hear the Indiana funds' case Tuesday, arguing in a two-page order that the funds "have not carried the burden" of proving that the Supreme Court needed to intervene.

There's a lot at stake for the American automaker and for its customers and suppliers. Legally, Fiat could have walked away from the merger if the deal did not close by June 15. If the deal had fallen through, Chrysler would have had few options except to liquidate. Last month, former Chrysler President Tom LaSorda said in bankruptcy court that Fiat was the only company interested in merging with Chrysler. To receive the additional federal funding it requires to operate, Chrysler needed a partner because it's no longer viable as a stand-alone company, according to the U.S. Treasury. A wire transfer from the federal government now gives Chrysler $6.6 billion in exit financing.

With the Chrysler situation wrapping up, the Obama administration can move forward with its ambitious plan to remake the American auto industry. Among the administration's initiatives is a $4 billion plan to subsidize new-car sales for consumers who trade in their old gas guzzlers. The "cash for clunkers" bill, which would give consumers up to $4,500 in vouchers to purchase more fuel efficient cars, was approved yesterday by the House, 298 to 119. The measure continues to tighten the administration's ties to the auto industry, which has already received billions of dollars in financial support from the federal government this year.

Read more about Cash for Clunkers.