Chrysler Back in Court to Get OK to Dump Dealers

Chrysler headed back to bankruptcy court Tuesday to get a judge to approve the termination of 789 dealer franchises, while Chrysler's plan to become a stronger automaker partnered with Italy's Fiat awaits action by the nation's highest court.

The sale of Chrysler's assets to Fiat had been expected to close more than a week ago, but Supreme Court Justice Ruth Bader Ginsburg's decision to delay the sale now threatens to derail Chrysler's restructuring plans.

More than 25 attorneys representing hundreds of dealers from across the country argued in bankruptcy court Tuesday that little would be gained by terminating their franchises, while Chrysler maintained that the move is a necessary part of its plan to cut costs and quickly emerge from Chapter 11.

Kevyn Orr, an attorney for Chrysler, said the automaker doesn't deny that it's slashing its dealer base because it's in bankruptcy protection. The automaker wants to reduce its dealer ranks by about 25 percent.

• Slideshow: Are You Driving One of America's Most Ticketed Cars?

"We make no bones about it that bankruptcy provides the dealer with certain rights it wouldn't have outside," Orr said in court.

But he said Fiat has made it clear that the number of dealerships needs to be reduced, whether it happens inside bankruptcy protection or later on.

The dealers also argued that any ruling by U.S. Judge Arthur Gonzalez should be put on hold pending Supreme Court action on the Chrysler sale.

Stephen Lerner, an attorney for the Committee of Chrysler Affected Dealers, a group of about 340 dealers, said dealers' lives will be destroyed and communities across the country will suffer because of Chrysler's decision.

He said the automaker could have treated the dealers in accordance with state franchise laws and provided a "softer landing" for those slated to lose their franchises. General Motors plans to cut about 40 percent of its 6,000 dealers by the end of 2010, but most won't be let go until their contracts end late next year.

"This did not need to happen," Lerner told the court. "It's unconscionable for these dealers to be suffering with no benefit to the estate."

Arguments wrapped up early Tuesday afternoon and Gonzalez said he would issue his ruling later in the day.

Chrysler has been flying through five weeks of bankruptcy proceedings and appeared all but certain to complete the sale of its assets to Fiat before a June 15 deadline. But Ginsburg issued a stay Monday to review an appeal by a trio of Indiana pension and construction funds which own a small part of Chrysler's secured debt. It is not clear how long the stay will last or if the high court will take up the case.

A federal appeals court in New York approved the sale Friday, but gave opponents until 4 p.m. Monday to try to get the high court to intervene. Ginsburg issued a one-sentence order blocking the sale minutes before the deadline.

The delay may be only temporary. Ginsburg could decide on her own whether to end the stay, or she could ask the full court to decide.

CONTINUED : Will Fiat Walk Away?

---

1 | 2 | Next >