Judge says 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 terminating 789 dealer franchises as part of its restructuring.

Judge Arthur Gonzalez in Manhattan's bankruptcy court said under Chrysler's plan, those dealers, which represent about 25% of the company's dealer base, will remain with "Old Chrysler," a collection of assets that aren't slated to be sold to Italy's Fiat Group.

A group representing about 300 dealers slated to lose their franchises filed an objection, arguing that they don't cost the automaker anything and that if Gonzalez approves Chrysler's motion thousands of workers will lose their jobs.

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.

Gonzalez said once the Fiat sale closes, he did not see how the bankrupt business would need a dealer network.

"Absent a car manufacturing business, the dealerships would not seem to serve any purpose for the debtor," he said, but he said there may be a case for the dealers to pursue damages.

Chrysler filed for bankruptcy April 30 and said about two weeks later that it would shut a quarter of its dealer network. The company said it wanted the number of dealers to better match the dramatic drop in sales, which have fallen more than 40% during the recession.

In bankruptcy court hearings last week on the Fiat sale, Chrysler executives said they wanted fewer, more profitable dealerships that could invest more in their locations and compete better with rival automakers' dealers.

The executives also said they want to combine single-brand dealers under one roof offering Chrysler, Dodge and Jeep vehicles.

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