US car maker Chrysler has filed for Chapter 11 bankruptcy.
The announcement was made by President Obama, who also revealed the troubled car maker has formed an alliance with Fiat.
Chapter 11 bankruptcy is designed to protect firms from creditors and give them time to deal with financial problems while still trading.
Most of the manufacturer's factories will be shut down until the Chapter 11 transaction is complete, but the company's workers will still be paid.
As part of the deal, Chrysler chief executive Robert Nardelli announced he would leave his post after the company emerges from bankruptcy.
Alliance with Fiat
Fiat will take a 20% stake in Chrysler to help build new 'green' cars, with the possibility of increasing this holding to 35% if performance targets are reached.
Fiat will not have to pay anything for the deal, which will make it the world's sixth largest car manufacturer.
The US Treasury will hold an 8% stake, and a union-run trust fund, VEBA, will take a 55% stake. Current owner Cerberus will relinquish its 80.1% holding, as will Daimler with its 19.9% stake.
The White House has said that it expects the bankruptcy proceedings to take no longer than 60 days to complete.
President Obama said the 'necessary steps' had been taken to give Chrysler 'a new lease of life'.