Chrysler, the nation's third largest automaker behind General Motors (NYSE:GM) and Ford (NYSE:F), will file for Chapter 11 bankruptcy and be eligible for $8 billion in federal aid. President Obama announced the news this afternoon in a press conference in which he blasted speculators for failing to stand behind the embattled company.

In a speech that blamed a small group of investment firms and hedge funds for refusing to help the automaker, a company saddled with $6.9 billion in debt, Obama said that bankruptcy is a necessary path to restore Chrysler's financial health, giving it "a new lease on life." As part of the agreement, Chrysler will partner with the Italian carmaker Fiat.

Creditors faulted
"I have every confidence that Chrysler will emerge from this process stronger and more competitive," Obama said. "The path we're taking is hard. But as is often the case, the hard path is the right one."

The announcement comes just a day before a government deadline in which Chrysler was to submit a restructuring plan. That plan was made impossible, according to the president, by creditors who refused to help write down the company's debt, insisting on a "taxpayer-funded bailout."

"[The creditors] were hoping that everybody else would make sacrifices, and they would have to make none," Obama said. "I don't stand with them. I stand with Chrysler's employees."

Yesterday, The Washington Post reported that a statement was released by a group claiming to represent creditors who chose not to support Chrysler's restructuring, saying they had been "systematically precluded" from direct negotiations with the government.

While Obama lauded Chrysler as a "pillar of our industrial economy," he said that the company had been weakened over time by avoiding tough choices, moving too slowly to adapt to the future by "designing and building cars that were less popular, less reliable, and less fuel-efficient than foreign competitors."

The partnership deal with Fiat, he said, will work to change that.

Management change
Yesterday, Chrysler CEO Robert Nardelli said he would step down after the company emerges from bankruptcy protection. Nardelli, the former boss at Home Depot (NYSE:HD), became Chrysler's CEO when Cerberus Capital Management bought the majority of the automaker from Daimler (NYSE:DAI) in 2007. In an interview with CNBC, Nardelli said that the Treasury Department did not ask him to resign, but that he felt it would be an appropriate time to leave once the company reemerged from bankruptcy.

Nardelli also indicated that Chrysler would be run by a nine-person board, with four picked by the U.S. government and three by Fiat. The board will pick a new CEO, he said.

"These are challenging times for America's auto industry and for the American people," Obama said during his White House press conference, stressing that "shared sacrifice and shared purpose" will see nation's troubled carmakers return to prominence. "Chrysler and GM are going to come back. And I am very confident that we're going to be able to make once again the U.S. auto industry the best auto industry in the world."

So, Fools, what do you think? Let us know: 

Fool contributor Leef Smith Barnes does not own shares of any companies mentioned. The Home Depot is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool's disclosure policy will keep you out of moral bankruptcy.