THE NEWS: General Motors Corp. (GM) filed for Chapter 11 bankruptcy protection in New York on Monday. The pre-packaged plan leaves the federal government in control of a downsized auto maker, faced with the weakest market conditions in a generation.

Meanwhile, a revamped Chrysler may be close to exiting bankruptcy reorganization after a U.S. judge approved the $2 billion sale of the bulk of its assets to a group led by Fiat SpA (FIATY).

THE DETAILS: Judge Robert Gerber is presiding over the GM bankruptcy, the largest-ever U.S. industrial bankruptcy case.

The U.S. government said it would provide an additional $30 billion in financing to GM in return for 60% equity in the new company and $8.8 billion in debt and preferred stock. Canada and Ontario are injecting $9.5 billion for a 12.5% stake. The U.S. is providing a $33 billion DIP loan to keep GM running. Judge Gerber approved a GM request in court Monday to tap about half the $33 billion in financing provided by the U.S. and Canada. Gerber also said GM could move forward with its plan to sell its assets to the new company controlled by the government.

GM Chairman Kent Kresa said Monday he will retain five members of the board of directors, adding that the Obama administration has final say on any new members. GM isn't pursuing any new alliances with other companies, he added.

A U.S. auto task force has gotten provisional backing from a majority of bondholders and unions representing workers in the U.S. and Canada, moves likely to ease its passage through court.

The bulk of GM's global operations will be combined in the "New GM." Only its U.S. entity has filed for protection from creditors.

A majority stake in GM Europe is slated to be sold to a consortium led by parts maker Magna International Inc. (MGA), though the entity will be held in trust by the German government pending an agreement that could take several weeks to finalize.

The U.S. Trustee's office said GM's unsecured creditors will meet Wednesday morning in New York.

As for Chrysler Group LLC, it will be controlled by the U.S. and Canadian governments, a union-run trust fund, and a group led by Fiat.

MARKET REACTION: U.S. stocks gained despite GM's bankruptcy filing, with the Dow Jones Industrial Average closing up 221 points to 8721. General Motors' benchmark bonds due 2033 were quoted at 13.125 cents on the dollar Monday afternoon, according to online trading platform MarketAxess. The bonds traded sharply higher Monday, gaining 3.275 cents on the day, are now up 9 cents in the past week. The bankruptcy filing triggers the settlement of around $3 billion in credit-default swaps written against the auto maker. Settlement of the CDS contracts will determine how much GM's bonds are worth in a restructuring.

WHAT HAPPENS NEXT: The key question now for GM is: Will it work?

Judge Gerber is crucial to determining whether the task force plan to have GM exit protection within 90 days is, in fact, realized. The treatment of bondholders could still see challenges to the plan in court.

The main question for GM is how it plans to accelerate the operational turnaround and revise the planning forecasts rejected by the task force at the end of March. The operational plans will affect the distressed auto supplier sector, which supplies about 70% of the content by value to manufacturers. Gerber on Monday approved GM's request to make payments to troubled "critical" parts makers while in bankruptcy through a Treasury program and its own supplier-aid initiative.

GM said it will keep plants running through the bankruptcy, but will shutter 14 factories and three parts centers by the end of 2011.

THE MARKETPLACE: U.S. light vehicle sales are expected to fall to around 10 million this year from 13.1 million in 2008 and 16.1 million in 2006. With GM and Chrysler cutting back production further, rivals are stepping up output.

For more Dow Jones coverage, please see:

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White House: Obama To Address Nation On GM Monday Morning 
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WSJ UPDATE: GM Chmn: 5 Directors Will Keep Their Seats >GM 
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(Doug Cameron, Nicole Campbell and Art Daniels contributed to this report.)