President Obama was pretty clear on March 30th that Chrysler as we know it is finished.

“If they and their stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollar to keep Chrysler in business.”

That blunt message was directed at Chrysler, the United Auto Workers union, Chrysler’s prospective merger partner Fiat and Chrysler’s lenders to do a deal by April 30th or pull off the road.

John Wolkonowicz, an auto analyst at IHS Global Insight, suspects the Obama Administration is using intense pressure on all involved to keep Chrysler in business. Currently, Chrysler is 80.1%-owned by private-equity firm Cerberus Capital Management, and 19.9%-owned by Daimler AG.

“This is Chrysler fighting for its life.”

Enter the Italians.

Fiat and Chrysler are negotiating a deal that will give the Italian auto group a 20% stake in Chrysler, with the option to purchase more after Chrysler pays back its taxpayer-originated U.S. government loans — to date, $4 billion.

But why would Fiat want 20% of a U.S. auto maker that the President’s Auto Task Force concluded “is not viable as a standalone company?”

Wolkonowicz says Chrysler is quite attractive, even if some of its cars aren’t.

First, Fiat wants back into the U.S. market.  The company, which also makes Alfa Romeo, Lancia and Ferrari cars, currently captures about 9% of the European market and has a foothold in South America.  Fiat is the market leader in Brazil, where it fights for dominance against Volkswagen.

Second, in partnering with Chrysler, Fiat would be going into business with a company that will have less debt — and $6 billion more from the U.S. government if the negotiations under way now in Washington succeed.

Chrysler’s reorganization plan is pretty drastic: lay off 35,000 people (41% of the work force), cut capacity 1.3 million units and eliminate seven current nameplates.

In order to qualify for that $6 billion in additional government cash, Chrysler has to cut wages to make the company’s pay package competitive with U.S. transplant auto makers. It also has to renegotiate its retiree benefit plan with the UAW.  The Treasury wants the UAW to accept equity in Chrysler instead of cash the auto maker owes its VEBA (Voluntary Employee Beneficiary Association).

Similarly, Treasury wants Chrysler’s lenders to accept equity in exchange for eliminating $5 billion in Chrysler debt.

It’s a lot to push through by April 30, and Fiat CEO Sergio Marchionne says “absolutely we are prepared to walk. There is no doubt in my mind” if the negotiations with the UAW fail.  The U.S. government is prepared to walk, too, if Chrysler’s lenders don’t reduce the company’s outstanding debt.

“I think there is a 50-50 chance at this point that a deal will be done with Fiat,” Wolkonowicz said in an interview this morning while discussing the potential deal and hurdles to be crossed.

The Obama Administration says Chrysler needs Fiat because it will get access to Fiat’s small-car technology.

Wolkonowicz says that alone is worth billions of dollars but he is not sure Chrysler and Fiat — with the government looking over their shoulder — can pull it off, “the government doesn’t understand the auto industry.”

Still, Wolkonowicz says FIAT understands a sweet deal when it sees one.

If the Obama Administration gets what it wants — cutting Chrysler’s debt, legacy obligations and production costs — Fiat may soon be enjoying la dolce vita, American style.