Judge to rule on Chrysler franchise terminations

[June 03, 2009]  NEW YORK (AP) -- A bankruptcy judge will rule Wednesday on whether Chrysler can terminate the franchise agreements of 789 of its dealers as part of its ongoing restructuring.

U.S. Judge Arthur Gonzalez is expected to hear testimony from Chrysler LLC executives, as well as dealers during the hearing.

Auburn Hills, Mich.-based Chrysler maintains that it needs to reduce its dealer base to a leaner network of about 2,400 dealers in order to emerge from Chapter 11 bankruptcy protection as a stronger company.

Chrysler claims that many of the dealerships in question, which amount to about a quarter of its dealer population, were chosen because they are either unprofitable or located too close to other Chrysler dealerships.

But the dealers argue that they don't cost the automaker anything, just make it money by selling Chrysler's cars and trucks.

They maintain that if Gonzalez approves Chrysler's motion it will result in the shuttering of hundreds of dealerships and thousands of workers will lose their jobs.

A group representing about 300 of the dealers slated to lose their franchises have filed an objection. They also earlier objected to Chrysler's motion to sell the bulk of its assets to a group led by Italy's Fiat Group SpA, because it was tied to the plan to eliminate the dealerships.

A trio of dealers testified during the third and final day of the sale hearing, saying that their businesses would mostly likely be forced to close if they lost their franchises.

In addition to the dealers group, attorneys for several individual dealers have also filed objections.

Separately, the U.S. Court of Appeals for the Second Circuit agreed late Tuesday to hear an appeal by a trio of Indiana state pension and construction funds of Chrysler's sale to Fiat. Arguments will begin Friday, The Wall Street Journal said, citing the court's order.

Gonzalez said in his ruling late Sunday that a speedy sale was needed to keep the value of Chrysler from deteriorating and would provide a better return for the company's stakeholders than if it had chosen to liquidate.

But the Indiana funds, which own $42.5 million of Chrysler's $6.9 billion in secured debt, aggressively objected, saying the sale does not provide a big enough return for secured debt holders, while paying off unsecured stakeholders.

Chrysler requested Monday that the sale be certified for immediate appeal in order to move the case quickly to U.S. District Court. It's unclear how much the appeal could delay the sale's closing and Chrysler's emergence from court oversight.

Chrysler has said that any delay could cause the deal with Fiat to crumble, as the Italian automaker has the option of pulling out if the sale does not close by June 15.

Also on Wednesday, the Senate Commerce Committee is scheduled to hold a hearing on GM and Chrysler dealership closings.

GM Chief Executive Fritz Henderson and Chrysler President James Press, along with John McEleney, chairman of the National Automobile Dealers Association, and other dealers, are expected to testify.

[Associated Press; By BREE FOWLER]

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