Fiat Will Stick With Chrysler Despite Deal Delay

Solicitor general files papers urging Supreme Court to oppose further delay of Chrysler sale

The U.S. Supreme Court's decision to put a hold on Chrysler's deal with Fiat has not scared away the Italian automaker.

Fiat said this morning it would not walk away from the deal to buy Chrysler's assets despite the delay, which could last anywhere from days to months, and may interfere with the Obama administration's hopes for a fast-track bankruptcy for Chrysler.

If the sale falls apart, Chrysler would almost certainly be forced to liquidate.

Chrysler has declined to comment, saying it is awaiting more information from the court.

Supreme Court Justice Ruth Bader Ginsburg ordered the delay Monday, following objections from three Indiana pension funds.

"Looks like we're going to get our day before the Supreme Court and that's a very good sign," said Indiana Treasurer Richard Mourdock.

The three funds, representing police, teachers and taxpayers, stand to lose at least $6 million if the deal goes through. They argue that President Obama overstepped his authority by using federal bailout money, and that the bankruptcy court unfairly put the claims of others, including the United Autoworkers Union, ahead of theirs.

"The big issue here is whether or not average Americans, retirees like those I represent, are going to have their wealth protected or taken away from them by actions of the federal government," said Mourdock.

Monday, U.S. Solicitor General Elena Kagan, in opposing the Indiana pension funds, rgued that the pension fund losses "cannot outweigh" the "grave consequences" that a collapse of Chrysler would cause.

"The government's argument is that the harm to Chrysler, which is possibly the loss of the entire business, far outweighs the harm to this group that's owed a very relatively small amount of money," said Lynn LoPucki, a law professor at UCLA.

As the the Supreme Court scrutinizes the case, timing becomes critical. The deal with Fiat is set to close by June 15. If the case is not resolved by then, the Italian automaker would have the option to cancel the proposed merger.

"It could mean Chrysler is pushed in Chapter 7 -- full liquidation, because we could see Fiat walk away," said Rebecca Lindland, an analyst with HMS Global Insight.

GM Bankruptcy Impacted Too

For the Indiana pension funds, the gamble is that they stand to recover more of their money if Chrysler is broken up and sold off.

"We're going to see some return far better we think than the 29 cents on the dollar that we've been offered," said Mourdock.

What happens in this case is critical not only for Chrysler but for General Motors. Some of the disappointed creditors in the GM case are making the very same arguments made by the Indiana pension funds, so what the Supreme Court ultimately decides has enormous consequences.

GM last week filed for bankruptcy, hoping for a quick restructuring.

With reports from ABC News' Zunaira Zaki.

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