Chrysler Wants Franchise Terminations

NEW YORK (AP) - Chrysler heads back to bankruptcy court Thursday
to ask the judge overseeing its case to allow it to terminate the
franchise agreements of 789 of its dealers, despite the protests of
many dealers who say the move could shutter their businesses for
good.

U.S. Judge Arthur Gonzalez is expected to hear testimony from
Chrysler LLC executives and dealers during what's expected to be a
lengthy hearing. The proceedings start at 8 a.m. EDT.

Auburn Hills, Mich.-based Chrysler maintains that it needs to
reduce its dealer base by about 25 percent to a leaner network of
about 2,400 dealers in order to emerge from Chapter 11 bankruptcy
protection as a stronger company.

But the dealers argue that they don't cost the automaker
anything. They say 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.

Thursday's hearing comes a day ahead of Chrysler's appearance in
front of the U.S. Court of Appeals for the Second Circuit in New
York.

Late Tuesday, that court halted Chrysler's sale of most of its
assets to Fiat pending an appeal by a trio of Indiana state pension
and construction funds. Arguments are scheduled for Friday
afternoon.

"We are pleased the Court of Appeals has agreed to hear our
arguments," Indiana Treasurer Richard Mourdock said in a
statement. "As we have stated from the beginning, Indiana retirees
and Indiana taxpayers have suffered losses because of unprecedented
and illegal acts of the federal government."

Chrysler has maintained that the deal with Fiat is its only hope
of avoiding selling itself off piece by piece. If the sale doesn't
close by June 15, Fiat has the option of pulling out of the deal.

In addition, production at Chrysler's manufacturing plants
remains halted pending the sale's closing.

"We are pleased that the Court of Appeals is setting this
schedule and has recognized the sense of urgency Chrysler has to
preserve and protect its going concern value," Chrysler said in a
statement released Wednesday afternoon. "We look forward to an
expeditious conclusion to this matter and to getting back to
building vehicles."

The funds, which include the Indiana State Police Pension Fund,
the Indiana Teacher's Retirement Fund, and the state's Major Moves
Construction Fund, claim that the deal as structured unfairly
favors the interests of Chrysler's unsecured stakeholders ahead of
those of secured debtholders such as themselves.

They also challenged the constitutionality of the U.S. Treasury
Department's use of Troubled Asset Relief Program, or TARP, funds
to supply Chrysler's bankruptcy protection financing.

Late Sunday, U.S. Judge Arthur Gonzalez, the bankruptcy judge
overseeing Chrysler's case, issued a ruling approving the sale
following three marathon days of testimony and arguments. Gonzalez
also ruled that the funds do not have the standing to challenge the
use of TARP money because they will receive their fair share of the
$2 billion set aside for secured debtholders, which is more than
they would have received if Chrysler had liquidated.

Under the terms of the agreement, a United Auto Workers union
retiree health care trust will receive a 55 percent stake in the
new company, while Fiat will get a 20 percent stake that can
increase to 35 percent. The remaining 10 percent of the company
will be owned by the U.S. and Canadian governments.

In the days leading up to Chrysler's Chapter 11 filing, the
automaker struck a deal with the majority of secured lenders to
give them $2 billion in cash, or 29 cents on the dollar, to erase
the $6.9 billion in debt. But some of the debtholders balked and
the automaker was forced to file for bankruptcy protection on April
30.

The Indiana funds hold $42.5 million, or less than 1 percent, of
Chrysler's total $6.9 billion in secured debt. They bought the debt
in July 2008 for 43 cents on the dollar.


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