Supreme Court clears path for Chrysler sale

WASHINGTON/DETROIT (Reuters) - The U.S. Supreme Court on Tuesday cleared the way for the sale of Chrysler LLC to Italy's Fiat, while General Motors began to revamp its widely criticized board by naming former AT&T Inc chief executive Ed Whitacre as chairman.

In a victory for the Obama administration driving the restructuring of bankrupt Chrysler, the court denied a request from Indiana pension funds to delay the sale to a group led by Fiat, a union-aligned trust and the U.S. and Canadian governments.

The White House welcomed the high court's action.

"We are delighted that the Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker," said a White House official, speaking on condition of anonymity.

Representatives for the three pension funds could not be reached. A spokeswoman for Chrysler had no immediate comment.

According to a person familiar with Chrysler's plans, the company is aiming to close the sale early Wednesday morning.

The person declined to be named because the plans are not yet public.

"Today's decision is good news for the country," said U.S. Representative Gary Peters of Michigan, whose district includes Chrysler headquarters. "Chrysler's swift emergence from bankruptcy has put the company in position to become more globally competitive."

Erich Merkle, independent auto analyst based in Grand Rapids, Michigan, said the choices were "approval of the sale or liquidation."

Moreover, Merkle said the court's decision to stand back was good news for GM, which is using a similar quick-sale strategy to facilitate its government-backed trip through bankruptcy.

"The stakes here were immense. Both GM and Chrysler need to get out of bankruptcy. They can't stay in," Merkle said, noting that Chrysler still had to demonstrate viability once it steps out of court protection.

John Casesa, managing partner at Casesa Shapiro Group, said at a conference at Oakland University in Rochester, Michigan, on Tuesday that both GM and Chrysler will be salvaged but it is unclear if they can be saved.

"The government can't assure long-term viability," he said, adding that Chrysler will shrink under Fiat ownership and GM's future is hard to forecast.

The Supreme Court decision followed a one-day stay issued by Justice Ruth Bader Ginsburg that prevented the Chrysler/Fiat deal from closing on Monday as planned. The Fiat option was the only one pursued to save Chrysler from collapse.

The pension funds said the bankruptcy and appeals courts are moving too fast and contended that Chrysler's sale would unlawfully reward unsecured creditors ahead of secured lenders.

They also said that the plan amounted to an illegal reorganization and that the Treasury Department overstepped its legal authority by using financial bailout funds for Chrysler when Congress had intended the money for banks.

The Treasury has dedicated more than $12 billion for Chrysler and roughly $50 billion for GM as part of the government's bailout of stricken U.S. automakers.

Chrysler sought bankruptcy April 30. GM entered court protection June 1.

Separately in New York, Chrysler won bankruptcy court approval to cut 789 dealerships, a quarter of its showrooms, in move that drew an angry response from a group of Senate lawmakers.

GM NAMES NEW CHAIR

Earlier on Tuesday, GM named Whitacre to become chairman of the reorganized automaker when it emerges from bankruptcy under U.S. government oversight.

Whitacre, an engineer by training who guided Texas-based Southwestern Bell through a decade of transformative mergers, will take over as chairman when a new GM is launched out of bankruptcy, the company said.

"He is coming into an industry that is accustomed to heavy regulations. He knows how to grow a company. He gives a lot of credibility to GM's restructuring," said Stephen Spivey, an auto analyst with Frost & Sullivan.

GM, which filed for bankruptcy on June 1, plans a quick sale process that would allow a much smaller automaker to emerge from court protection in as little as 60 days under the majority government ownership.

Former GM Chairman and Chief Executive Rick Wagoner, who had staked his reputation on keeping the company out of bankruptcy, was ousted by the Obama administration at the end of March.

In announcing Whitacre's selection, GM also confirmed that the longest-serving board members and those most closely associated with Wagoner's tenure would be leaving.

(Reporting by James Vicini and Poornima Gupta)

(Additional reporting by David Bailey, Kevin Krolicki, Emily Chasan, Ross Colvin and Tom Hals; editing by Carol Bishopric)