The new partnership will create the world's sixth-largest carmaker
Chrysler has gained approval from a US bankruptcy judge for its sale to a consortium led by Italy's Fiat.
US President Barack Obama has said he believes that Chrysler will become "stronger and more competitive". We examine what the future holds for Chrysler.
What is the detail of the sale?
The Fiat-led consortium is buying a majority of Chrysler's assets in a deal backed by both the US and Canadian governments.
Fiat is to take a 20% stake in Chrysler, while 68% will be owned by a union trust fund and the two governments will share 12%.
Creditors holding $6.9bn (£4.3bn) of Chrysler debt will receive only $2bn. However, 90% of them backed the deal.
Meanwhile, the two governments have agreed to provide about $8bn in loans to the new Chrysler.
As a result, Chrysler could now exit bankruptcy protection as early as later this week.
Why was Chrysler in trouble?
In recent years, Chrysler has concentrated resources on producing larger vehicles.
While this was a successful strategy during the 1990s, when sports utility vehicles (SUVs) grew in popularity with the American public, tastes have since shifted.
As petrol prices have risen consumers have turned to smaller, more fuel-efficient vehicles - an area in which Japanese carmakers have excelled.
And, like carmakers all over the world, Chrysler has been hit by the global slump in demand for cars during the current recession.
As a result, it applied for bankruptcy protection on 30 April.
What does bankruptcy protection mean?
Bankruptcy protection in the US is called Chapter 11.
It gives a business protection from its creditors allowing it to try to rearrange its finances while continuing to trade.
So the filing will give Chrysler time to renegotiate its contracts with dealers and suppliers.
It will also be able to sell assets without worrying about its existing debt obligations.
How will Fiat help Chrysler survive?
Fiat will initially take a 20% stake in Chrysler, which will rise to 35% if performance targets are met.
Although Fiat is not paying anything for its stake, it will offer Chrysler "advanced technology and intellectual property" and "access to a global distribution network", according to the Obama administration.
So Chrysler will be able to use Fiat's technology to make more fuel-efficient cars and engines.
But how "global" a network opens up for Chrysler is somewhat more questionable.
Although the partnership will create the sixth-largest automaker in the world, Fiat itself is reliant on the Italian market.