The answer is Fiat. And so with that, the Italian auto giant is buying into not the Chrysler of today, but the one that will emerge from Chapter 11 bankruptcy, possibly in a matter of weeks.

If the reasons for the domestic automaker’s downfall seem complicated, those for the bankruptcy are a combination of duck and cover to deal with creditors, along with shedding the old, dead skin of too many dealers and environmental and asbestos liabilities. [WSJ] Fiat wants nothing to do with a bloated dealer structure nor thorny legal issues

The Wall Street Journal also reports that the bankruptcy filing opens the way for an additional $8 billion in government financing to keep the automaker operating through the reorganization. For that, the U.S. government gets an 8 percent stake in the new entity, while Fiat will own 20 percent and the UAW comes out with a majority stake of 55 percent. The government will have the right to appoint board members, but will not be involved in daily operations.

As part of the bankruptcy deal, Chrysler’s financing arm folds into GMAC, which will now finance Chrysler, Dodge, Jeep and whichever GM brands remain after its reorganization. GMAC also provides financing to other dealers and brands of vehicles.

Chrysler arrives at the government’s deadline with an agreement with the UAW to cut labor costs, but without relief from lenders. The latter isn’t surprising given that the Treasury Department offered bondholders $2.25 billion in cash to wipe out $6.9 billion of debt, the Journal reports. Bondholders could very well be stuck with that deal if the bankruptcy judge doesn’t make adjustments.

Administration officials told the Journal they were confident Chrysler can return to profitability through the reorganization and won’t be sold off in pieces through a liquidation. However, creditors could fight for just that in court, arguing that the parts are worth more than the whole and that they’d get more than the 29 cents on the dollar currently being offered.

Despite desparate cutbacks during the past few years, Chrysler still employs more than 50,000 people in the U.S. Even with a gradual reduction in the number of dealers, it remains less than certain that it can survive beyond the near term without a serious examination of how many cars it can sell. Beyond the sales figure, the company needs to avoid the product mistakes that brought it to its knees.

Even with Fiat on board, the executives running the newer Chrysler cannot realistically expect to emerge from bankruptcy as a full-line automaker. A strict focus on what can be brought to market and make money is, after all, the key to success. Every product segment should be on the table, even if it’s obvious that some are gimmes. But does Chrysler really need to compete in the midsize sedan market? The latest offering, the Sebring/Avenger was a flop outside of fleet sales, as were Jeep models that diluted the brand.

For the first few years, it would be smart for Chrysler to stay in the shallow end by clearly defining each brand with a few core models. Venture into deep water too soon, and the drowning will start all over.