Prime Minister Stephen Harper, right, and Ontario Premier Dalton McGuinty tell reporters in Toronto that Canada and Ontario will provide $2.42 billion US in financing to Chrysler. (Darren Calabrese/Canadian Press)

U.S. President Barack Obama said Thursday the governments of Canada and the United States will offer $10.5 billion US support to Chrysler LLC, which has filed for bankruptcy protection in New York State.

The U.S. government is willing to offer $8.08 billion US in aid to the automaker, while the Canadian government and the Ontario government will jointly offer $2.42 billion US ($2.9 billion Cdn).

Starting May 4, Chrysler plants will cease most production until the company gets out of the court process, which is projected to last 30 to 60 days.

The Canadian and Ontario governments will end up with a two per cent stake in a restructured Chrysler, while the U.S. government will hold eight per cent. Canada will get to appoint one independent director to a new nine-person Chrysler board. The U.S. will appoint four independent directors.

While the situation is not ideal, it is the the best way forward, Prime Minister Stephen Harper told reporters at a joint news conference in Toronto with Ontario Premier Dalton McGuinty.

"These companies are vital to a network of employment," Harper said, referring to the Canadian auto sector.

In a White House statement, Obama said Chrysler will come out of protection as a more viable company with "a new lease on life."

"No one should be confused about what a bankruptcy process means," Obama said. "This is not a sign of weakness, but rather one more step on a clearly charted path to Chrysler's revival."

A bankruptcy filing became expected after a group of about 40 hedge funds opposed a plan that would reduce the automaker's $6.9 billion US in secured debt. A group of four banks that together hold about 70 per cent of that debt is in support of the plan. Talks over the debt restructuring broke down overnight.

'Unjustified bailout'

Obama blasted the investment groups that didn't back the restructuring.

"A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified bailout," he said during a noon-hour address from the White House.

"They were hoping that everybody else would make sacrifices and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them," he said.

Obama said that Chrysler and Italy's Fiat Group SpA have formed a partnership "that has a strong chance of success."

He said Fiat will provide technology to Chrysler and will commit to building cars at Chrysler plants.

Chrysler had a U.S.-government imposed deadline of 11:59 p.m. Thursday to work out a new plan to become viable again.

Chrysler CEO leaving

In conjunction with the Chrysler restructuring, CEO Bob Nardelli said he will step down after the company emerges from creditor protection, which could take up to 60 days. Speaking on CNBC, Nardelli said he was not asked to leave the company, but said he thought it was the right time to go.

Nardelli has been in the CEO post at Chrysler since Cerberus Capital Management acquired control of the automaker in 2007. Cerberus owns 80 per cent on Chrysler.

"Even though total agreement was not possible, I am truly grateful for all that has been sacrificed on the part of many of Chrysler's stakeholders to reach an agreement in principle with Fiat," Nardelli said in a release from Chrysler.

Chrysler is seeking quick court approval of its agreement with Fiat and the sale of Chrysler's principal assets to a new company.

In his address, Obama called Chrysler a pillar of the U.S. industrial economy, "but frankly a pillar that's been weakened by papering over tough problems and avoiding hard choices."

"For too long, Chrysler moved too slowly to adapt for the future — building and designing cars that were less reliable, less popular and less fuel-efficient than competitors. That's what brought us to a point where they sought taxpayer assistance," he said.

Focus on jobs

CAW president Ken Lewenza urged workers at Chrysler to focus on their jobs of producing vehicles, and to avoid the distractions that come with the company's restructuring.

"It is shocking that a company with Chrysler's stature and history should be forced into bankruptcy protection," Lewenza said. "But this development is just one part of a bigger process that we hope will reposition the company for recovery and future success."

Charlotte Yates, a professor of labour studies at McMaster University, called it a good deal, and said she was glad to see Canadian governments get an ownership stake in exchange for their cash infusions.

"I think that we have to remember that Chrysler employs 9,000 people directly and a good seven to eight times that number indirectly through the various industries and services," she said. "So I think it is a good investment."