Judge OKs Chrysler's bid to cut U.S. dealers

NEW YORK (Reuters) - Chrysler LLC won court approval on Tuesday to cut a quarter of its U.S. dealerships and the bankruptcy court judge overruled requests to delay the order until the U.S. Supreme Court rules on the sale of the company.

Judge Arthur Gonzalez said his order, which allows Chrysler to reject 789 dealer contracts, was effective immediately.

"No dealer wants to be rejected. We understand that," Chrysler lawyer Kevyn Orr told the judge, adding that the bankruptcy law did give dealerships special protections.

The dealers would be able to file damage claims against Chrysler within a certain timeframe yet to be determined, the judge said.

The dealers had wanted more time to keep their businesses open in order to clear inventory and continue providing warranty services. With the order, the affected dealers will no longer be able to sell new Chrysler cars, provide repairs or use the Chrysler name or trademark.

"We are extremely disappointed particularly as we felt there was room to delay the decision until after the sale," said Andrew Entwistle, a lawyer representing a New York dealership.

Entwistle said his clients would appeal.

The U.S. Supreme Court on Monday delayed the automaker's sale to a Fiat-led group pending further review.

Gonzalez, who sits on the U.S. Bankruptcy Court for the Southern District of New York in Manhattan, had indicated last week he would approve the motion, largely because the dealers were not part of the sale to Fiat.

Chrysler's bankruptcy financing is providing marketing funds to the dealers, allowing them to offer incentives to potential buyers.

Chrysler wanted to consolidate its network around dealers that offer all three of its brands -- Dodge, Jeep and Chrysler -- and wants fewer, more profitable dealers that can invest in their locations.

About 98 percent of the vehicles at rejected dealers have been reallocated to stores that will be carried to the new Fiat-led Chrysler, the Chrysler attorneys said Tuesday.

In re: Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002.

(Editing by Gerald E. McCormick)