Bankruptcy is now almost inevitable for General Motors Corp., once the world's most successful automaker, as a result of the company's failure to get enough of its estimated 10,000 bondholders to swap their claims for stock.

The principal amount of notes tendered was "substantially less than the amount required by GM," and, as a result, "the exchange offers will not be consummated," the company said yesterday in a statement.

The Detroit automaker now faces a government-imposed deadline on Monday to restructure or file for bankruptcy. CEO Fritz Henderson has said several times that GM, which has been kept afloat with $19.4 billion in emergency U.S. loans, would file if the company did not get 90 percent of its bondholders to make the deal.

GM's board is set to meet later this week and will take up the bankruptcy issue then. Company officials declined to give a specific date for the meeting.

Meanwhile in New York yesterday, Chrysler began a marathon bankrupty court hearing to persuade a judge to approve its plan to sell most of its assets to Italian automaker Fiat and save itself from liquidation. The company was waiting to see whether Judge Arthur Gonzalez would approve the sale despite protests from a group of Indiana state pension and construction funds that hold less than 1 percent of Chrysler's secured debt.

If Judge Gonzalez OKs the sale, the automaker could emerge from bankruptcy within weeks. The judge said the hearing would continue as long as "reasonable" last night, but he didn't expect to get through all of Chrysler's witnesses, and the hearing would likely be adjourned until today and perhaps stretch throughtomorrow.

Attorneys for Chrysler say unloading the assets to a group led by Italy's Fiat Group SpA is the company's only hope to avoid selling itself off piece-by-piece. They say a leaner Chrysler could shift more easily to smaller, more fuel-efficient cars. But many Chrysler dealers, bondholders and former employees say they are being steamrolled by the bankruptcy proceedings. Fiat could back out if the deal doesn't close by June 15.

On the other hand, approval of the sale would put Chrysler on track for a quick exit from bankruptcy protection, defying skeptics who insisted that such a filing would leave the automaker mired in court for many months.

The GM exchange offer, which would have given bondholders a 10 percent equity stake, was opposed by both institutional and individual investors, who said they've been treated worse than a union retiree-medical fund.

"It's no surprise at all that a deal that was as unattractive as this one would be soundly rejected," said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tenn. He urged his clients to refuse the exchange offer.

According to some parties, members of the group believe they may get a better deal in bankruptcy proceedings. A number of bondholders are also covered by insurance against potential losses and can, analysts said, afford to gamble they'll do better in court.

"A number of them are insured by AIG, for instance, and if there's a default, they get all of their money," said David Cole, chairman of the Ann Arbor, Mich.-based Center for Automotive Research. "That would be a big hit on AIG, of course, which is already in difficulty. There's a premium cost to all of this that is not trivial, but it's cheaper than the amount of losses that can occur for some of these bondholders."

But the bondholders' unhappiness isn't just about money.

They also have reservations about GM's viability plans, and they want revisions. They don't believe the company has eliminated enough nameplates and taken enough other steps to get its cost structure in line.

Already, GM has announced it is closing down Pontiac at the end of 2010 and will try to sell Saturn, Saab and Hummer. If buyers can't successfully complete a deal, those brands will be dropped.

Investors also are furious about the size of the offer made to the United Auto Workers. UAW's health care trust for retirees would own 17.5 percent of GM and would get a seat on GM's board.

Then there are the offers made to workers who retire from GM early. Most of the automaker's 61,000 hourly employees would get a buyout and early retirement offer.

Production workers would be offered $20,000 plus a $25,000 voucher for a new car for those retiring early, while skilled trades workers would get $45,000 plus the voucher. Employees with 20 or more years of service would get $115,000 and the car voucher.

But there's room for flexibility in the restructuring plan agreed upon by GM and the union, analysts say.

"What could happen is that the UAW, for instance, could take about half of the equity they expect to get and the government could decide they don't want over 50 percent of the equity and they could make a very attractive deal with the bondholders," Mr. Cole said.

"It's not all over until it's over but this is a very, very risky period that we are in right now," he added.

The stakes for the country's economy could scarcely be higher should GM enter bankruptcy, according to a study by the Center for Automotive Research. That study says if both GM and Chrysler have bankruptcy proceedings that last more than three months, the country's economy could be pushed into a depression.

Because of a series of chain reactions within the economy, a bankruptcy process lasting longer than three months could trigger layoffs and firings that would total more than 1.3 million jobs by the end of 2009, according to the report.

Arguably, things could have been just as bad -- maybe worse -- had GM not considered bankruptcy and simply tried to plow along, doing the best it could without government intervention, analysts said. Of course, they said, by now GM would have closed its doors.

"It's a tough situation both ways," said Jack Nerad, editorial director of Kelley Blue Book.

"Most companies going into bankruptcy don't come out of it. This is different because you have the federal government involved. Unless there's a major change in policy that I can't foresee right now, I think the government is going to bash this right through."

If GM is successful in going through a brief, efficient bankruptcy process, taxpayers are still in for a long period of supporting the automaker financially, analysts say.

"It's going to take billions of dollars to keep GM afloat," Mr. Nerad said.

A successful short bankruptcy is far from certain, so there's still potential for a collapse of GM if things don't go well with bondholders, dealers that will be closed, retirees, investors and countless others who will doubtless find their way to bankruptcy court to plead their cases, analysts added.

"Depression is certainly being bandied about in certain quarters, and I don't know how real a threat that is and how much of that is rhetoric," said Mr. Nerad. "But certainly, a case can be made that the collapse of a company the size of General Motors would be a major, major calamity for this country."