US car giant Chrysler is to file for bankruptcy after talks on its future broke down.
Chrysler, America's third largest car maker, had until the end of Thursday to stave off collapse.
The White House said the firm would proceed with chapter 11 bankruptcy protection.
It is still seeking a deal with Fiat to secure its future and in doing so create the world's fifth largest car maker.
The US Treasury had been in tense negotiations with a small group of hedge funds to wash out the company's remaining debt and facilitate an alliance with Fiat, a step considered essential to Chrysler's survival.
"I think there is reasonable optimism that (a deal between Fiat and Chrysler) can be closed with an announcement perhaps even by President (Barack) Obama today," Italian Industry Minister Claudio Scajola told Italian television.
Chrysler is majority-owned by Cerberus Capital Group and is seen as being among the weakest of all the world's car manufacturers.
The White House had set a series of aggressive targets for Chrysler in order to justify another £4bn in investment on top of £3bn in emergency loans the government has extended since the start of the year.
President Obama will issue a statement on Chrysler's future later today.
General Motors - which has been given $15bn by the US government - faces a June 1 deadline to restructure on its own or face likely bankruptcy.
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