Chrysler to sever dealers, but move may be delayed
By Tom Hals
NEW YORK, June 9 (Reuters) - Chrysler is expected to get approval from bankruptcy court on Tuesday to trim its dealer network by a quarter, although opponents want any order delayed until the U.S. Supreme Court rules on the sale of the company.
Chrysler asked the judge overseeing its bankruptcy to allow it to reject dealership agreements with 789 stores selling Dodge, Jeep and Chrysler vehicles.
The bankrupt automaker has proposed selling most of its operations out of bankruptcy to a group managed by Italian automaker Fiat, leaving unwanted factories in bankruptcy.
Arthur Gonzalez, a judge with the U.S. Bankruptcy Court in the Southern District of New York in Manhattan, has indicated he will approve the motion to reject dealers, largely because the dealers were not part of the sale to Fiat.
If approved, the motion would reject the dealer contracts on Tuesday. But dealer representatives said a ruling by U.S. Supreme Court on Monday indicates that the bankruptcy court should delay the end of those dealer agreements until the sale of Chrysler is completed.
On Monday, the sale to Fiat was thrown into uncertainty when the U.S. Supreme Court delayed the close of the transaction, pending further review.
"If the Supreme Court continues the stay beyond today, which we think likely, any rejection should not be effective until the Supreme Court situation is clear," said Stephen Lerner, an attorney at Squire Sanders & Dempsey, who represents more than 300 dealers.
CONSOLIDATING THE DEALERS
Chrysler wants to consolidate its network around dealers that offer all three brands - Dodge, Jeep and Chrysler - and wants fewer, more profitable dealers that can invest in their locations.
Putting a human face on an otherwise abstract process, Jim Tarbox, who owns dealerships in Massachusett and Rhode Island, nearly came to tears on Thursday as he described when Chrysler notified him it was severing their relationship.
Chrysler attorneys on Tuesday moved to ease the blow of lost business for the dealers, telling the judge they would give affected dealers until Monday to shift some unsold cars to stores remaining with the Fiat-led automaker.
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.
Chrysler also addressed some concerns of several states that opposed the motion to reject dealerships, which are heavily regulated under state law.
Dealers have argued that rejecting the franchises will not save Chrysler much money but could hurt the viability of a reorganized automaker when it comes out of bankruptcy.
They also said Chrysler used bankruptcy to accelerate a plan to trim a network that Fiat did not object to absorbing.
In re: Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002.
