Chrysler will be reborn this afternoon and begin a new era in alliance with Fiat, sources close to the Obama Administration have confirmed, the only sticking point will be whether it happens inside or outside a bankruptcy.

With the UAW's members ratifying the union deal yesterday by  a large majority and thus removing this obstacle, late last night three creditors were still holding out against the U.S. Treasury Department's offer of US$2.25 billion cash in exchange for writing off all the US$6.9 billion of secured debts that a consortium of lenders are owed.

With 43 of the 46 creditors having now agreed to the U.S. treasury Department's offer, including the biggest lenders such as JP Morgan Chase and Citibank, three smaller investors, reported in the media to be Oppenheimer Funds, Perella Weinberg Partners and Stairway Capital, are holding out despite intense pressure from the Administration and Michigan's elected representatives. If they fail to accept the terms on offer, Chrysler will be placed into Chapter 11 bankruptcy - possibly as early as today - with the re-emerging entity forging an alliance with Fiat, the Italian company still taking an initial stake of around 20 percent. Even if the three lenders agree terms the Administration may still force Chrysler into bankruptcy to cut down the size of the company in certain areas, such as reducing the number of dealerships, something that would be easier to achieve under the Chapter 11 process.

Last night, during a press conference to celebrate his first 100 days in office, U.S. President Obama addressed the Chrysler issue. "I don't think we should micromanage," he told reporters. "But like any investor, the American taxpayer has a right to scrutinise what's being proposed and make sure that the money's not being thrown down a drain." Obama added that he wasn't sure "whether the deal is going to get done," adding the he would be sure to protect workers' rights because "management decisions betrayed workers."

Obama also was upbeat about Fiat's contribution to the new company. "We're hoping that you can get a merger where the taxpayers will put in some money to sweeten the deal," he told reporters after a town hall style meeting, "but ultimately the goal is we get out of the business of building cars, and Chrysler goes and starts creating the cars that consumers want," he added.

Administration officials said the talks could extend right up to the midnight deadline. When a deal is struck with Fiat the U.S. Treasury Department will release up to US$6 billion in additional funding. Any bankruptcy could be administered in a 'surgical' manner, and last as little as 30 days.