Judge: Chrysler has good case for franchise cuts

NEW YORK – The judge overseeing Chrysler's bankruptcy case said Thursday that the automaker has a good case for the termination of 789 of its dealer franchises as part of its ongoing restructuring.

U.S. Judge Arthur Gonzalez said that under Chrysler LLC's plan, those dealers, which represent about 25 percent of the company's dealer base, will remain with "Old Chrysler," a collection of assets that aren't slated to be sold to a group led by Italy's Fiat Group SpA.

Since those leftover assets won't be making vehicles, there would be little use for the dealers that would go with them, Gonzalez said.

"If the sale would be consolidated, there's a strong argument that no dealer network would be needed," Gonzalez said at the beginning of Thursday's court hearing. "Nevertheless, I think it's still important to have this hearing."

Late Sunday, Gonzalez issued a ruling approving the government-backed sale of most of Chrysler's assets to a group led by Fiat. But the sale has been stayed pending an appeal filed by three Indiana state pension and construction funds. Arguments before the U.S. Court of Appeals for the Second Circuit are slated for Friday afternoon.

Gonzalez was to hear testimony from Chrysler dealers and executives during Thursday's hearing, with legal arguments to follow on Tuesday. It's not clear when he will rule on Chrysler's motion, or if the hearing will delay Chrysler's plans to terminate the franchises effective Tuesday.

Just under 20 Chrysler dealers were sworn in at the beginning of Thursday's hearing. In the first hour of testimony, three dealers took the stand. One broke down in tears when describing to the court how he found out that he was going to lose his franchise.

Auburn Hills, Mich.-based Chrysler claims that it needs to reduce its dealer base 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 sale to Fiat, saying it was tied to the plan to eliminate the dealerships.