A US bankruptcy judge has approved the sale of most of Chrysler’s assets to a group including Fiat, of Italy, hours before an expected bankruptcy filing by General Motors (GM).

Judge Arthur Gonzalez has approved the $2 billion (£1.22 billion) sale to a new company that will be 68 per cent owned by a healthcare trust aligned with the United Auto Workers union.

Fiat will control 20 per cent of the new group, with the US and Canadian governments owning the remaining 12 per cent.

Judge Gonzalez said that the only alternative to approving the sale was the “immediate liquidation” of the company.

“Indeed, because of the overriding concern of the US and Canadian governments to protect the public interest, the terms of the Fiat transaction present an opportunity that the marketplace alone could not offer, and that certainly exceeds the liquidation value,” Judge Gonzalez wrote.

The move paves the way for Chrysler to exit Chapter 11 bankruptcy protection, which it applied for on April 30.

Analysts view Chrysler as a test for the much bigger and more complex bankruptcy of GM.

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