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Post Judge allows Chrysler to close 25% of dealers

A federal bankruptcy judge late Tuesday approved Chrysler LLC’s plan to immediately close 789 of its nearly 3,200 dealerships.

U.S. Bankruptcy Judge Arthur Gonzalez issued a six-page decision after hearing about four hours of legal arguments Tuesday morning from the automaker, its committee of unsecured creditors and more than a dozen lawyers representing more than 300 objecting dealers that Chrysler wants to shutter Tuesday. He said it represented “an exercise of sound business judgment by (Chrysler), made in good faith and for legitimate commercial reasons … and is appropriate and necessary.”

Chrysler said Tuesday it would allow its closing dealers until June 15 to transfer their unsold inventory to other dealers. “The company is trying to be compassionate toward its dealers,” said Kevyn Orr, a lawyer for Chrysler.

Stephen Lerner, a lawyer for the dealers, told Gonzalez that Chrysler was acting in an “unconscionable” fashion and that the process had been “less than fair to dealers.”

Chrysler “could have provided a softer landing to its dealers,” Lerner said.

But Orr noted that the company has the right to terminate contracts in bankruptcy. “We’re not here to negotiate,” he said.

He said dealers who don’t take advantage of the offer to transfer vehicles were acting “irrationally.”

But closing dealers may be stuck with unsold parts and tools. After Tuesday, they will not be able to sell new Chrysler vehicles with warranties or be eligible for Chrysler sales incentives — moves that would make it effectively impossible to sell most vehicles.

General Motors Corp., which is seeking to shutter at least 2,400 dealers, has taken a much different tack with its dealers.

GM is offering an appeal process for closing dealers and has reversed itself in at least 11 cases. GM is offering cash payments of up to $1 million for closing dealers and giving them 18 months to wind down and sell off their inventory.

“Employees’ families are destroyed,” Lerner said of Chrysler’s closing decisions. “It did not have to be this way.”

Orr said the closing dealers have just 2 percent of the initial 44,000 units of inventory they held when Chrysler announced their closings on May 14 — and that 98 percent of the inventory has been reallocated on terms.

Chrysler has “implemented a reallocation program under which qualified new Chrysler, Dodge and Jeep vehicles held by consenting (closing) dealers will be purchased from these dealers by remaining authorized dealers on terms and conditions substantially similar to the repurchase of vehicles that otherwise would occur under certain,” the company said. Judge Gonzalez cited the program in approving the request to close the dealerships.

A series of lawyers representing the more than 300 Chrysler dealers objecting to the closing are addressing the court. One, Russell P. McRory, compared Chrysler to the Wizard of Oz, saying they were trying to convince the court to “pay no attention to the man behind the curtain.”

Lerner also asked Gonzalez to at least delay approving the closing of dealers until the Supreme Court decides whether to approve the sale of the bulk of Chrysler’s assets. Another lawyer said the dealers should be able to stay open until Chrysler’s tie-up with Fiat SpA closes.

A lawyer for the Illinois Secretary of State’s office said that under state law closing dealers get 60 days to wind down. If the court follows the state law, those dealers would still have about 30 days left to sell off inventory. Other states, including New York, allow closing dealers after 90 days.

On Monday, Justice Ruth Bader Ginsburg delayed Chrysler’s exit from bankruptcy, extending a stay issued Friday by the federal appeals court in New York, which had upheld Gonzalez’ May 31 approval of the sale of Chrysler’s assets. The company’s “bad assets” will be sold off over the next year or so in bankruptcy. The Supreme Court had taken no action as of mid-afternoon Tuesday.

Chrysler has said the dealers closing are underperforming — and account for just 14 percent of its annual retail sales.

A House Energy and Commerce subcommittee is set to consider the issue of the closing GM and Chrysler dealers on Friday, with GM CEO Fritz Henderson and Chrysler president James Press scheduled to testify, along with John McEleney, head of the National Automobile Dealers Association. The Senate Commerce Committee held its own hearing on Wednesday on closing dealerships — with the three same witnesses, among others.



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