Court adds uncertainty to Chrysler reorganization

NEW YORK (AP) — Chrysler headed back to bankruptcy court Tuesday to get a judge to approve the termination of 789 dealer franchises, while Chrysler's plan to become a stronger automaker partnered with Italy's Fiat awaits action by the nation's highest court.

The sale of Chrysler's assets to Fiat Group SpA had been expected to close more than a week ago, but Supreme Court Justice Ruth Bader Ginsburg's decision to delay the sale now threatens to derail Chrysler's restructuring plans.

Several attorneys representing hundreds of dealers from across the country argued in bankruptcy court Tuesday that little would be gained by terminating their franchises, while Chrysler maintained that the move is a necessary part of its plan to cut costs and quickly emerge from Chapter 11.

The dealers also argued that any ruling by U.S. Judge Arthur Gonzalez should be put on hold pending Supreme Court action on the Chrysler sale. The judge is expected to rule after arguments conclude.

Chrysler LLC is working to reduce its dealer ranks by about 25 percent as part of its cost-cutting actions. But the move, which still needs bankruptcy court approval, is being challenged by a group representing more than 300 dealers, as well as individual dealers.

Chrysler flew through five weeks of bankruptcy proceedings and appeared all but certain to be able to complete the sale of its assets to Fiat before a June 15 deadline. But Ginsburg issued a stay Monday to review an appeal by a trio of Indiana pension and construction funds which own a small part of Chrysler's secured debt. It is not clear how long the stay will last or if the high court will take up the case.

Fiat could walk away from the deal after June 15 and leave the struggling U.S. automaker with little option but to liquidate. But a Fiat spokesman said Tuesday that the Italian automaker will not turn its back on a deal despite the Supreme Court stay.