US carmaker Chrysler will file for Chapter 11 bankruptcy protection immediately and has formed an alliance with Fiat, President Obama has said.
Chapter 11 protects firms from their creditors, allowing them to rearrange their finances while still trading.
The move came after talks had broken down with Chrysler's lenders late on Wednesday, the White House said.
Chrysler chief executive Robert Nardelli said he will step down after the company emerges from bankruptcy.
Mr Nardelli has been in charge at Chrysler since 2007 but said he felt it would be an appropriate time to leave after bankruptcy.
Chrysler will receive a further $8bn in government aid, up from the $6bn the Treasury had promised it if it had successfully restructured the business by midnight.
The White House described the move as a "surgical short bankruptcy" which should last between 30 and 60 days.
President Obama said the "necessary steps" had been taken to give Chrysler "a new lease of life".
