Judge to consider Chrysler franchise terminations-WEB ONLY

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Chrysler heads back to
bankruptcy court today to ask the judge overseeing its case to allow it to
terminate the franchise agreements of 789 of its dealerships, despite the
protests of many dealers who say the move could close their businesses for

U.S. Judge Arthur Gonzalez is expected to hear testimony from Chrysler LLC
executives and dealers during what’s expected to be a lengthy hearing starting
this morning.

Auburn Hills, Mich.-based Chrysler maintains that it needs to reduce its dealer
base by about 25 percent to create 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.

Among those dealers on the chopping block are at least 20 from Indiana, including Indianapolis dealers Palmer Dodge Inc., 4545 E. 96th St.; Palmer Dodge
West, 5051 W. Pike Plaza Road; and Gene Beltz Shadeland Dodge, 1630 N.
Shadeland Ave.

A group representing about 300 of the dealers slated to lose their franchises
have filed an objection. They also earlier objected to Chrysler’s motion to
sell the bulk of its assets to a group led by Italy‘s Fiat Group SpA, because it
was tied to the plan to eliminate the dealerships.

Today’s hearing comes a day ahead of Chrysler’s appearance in front of the U.S.
Court of Appeals for the Second Circuit in New York.

Late Tuesday, that court halted Chrysler’s sale of most of its assets to Fiat
pending an appeal by a trio of Indiana
state pension and construction funds. Arguments are scheduled for tomorrow

“We are pleased the Court of Appeals has agreed to hear our
arguments,” Indiana Treasurer Richard Mourdock said in a statement.
“As we have stated from the beginning, Indiana
retirees and Indiana
taxpayers have suffered losses because of unprecedented and illegal acts of the
federal government.”

Chrysler has maintained that the deal with Fiat is its only hope of avoiding
selling itself off piece by piece. If the sale doesn’t close by June 15, Fiat
has the option of pulling out of the deal.

In addition, production at Chrysler’s manufacturing plants remains halted
pending the sale’s closing.

“We are pleased that the Court of Appeals is setting this schedule and has
recognized the sense of urgency Chrysler has to preserve and protect its going
concern value,” Chrysler said in a statement released yesterday afternoon.
“We look forward to an expeditious conclusion to this matter and to
getting back to building vehicles.”

The funds, which include the Indiana State Police Pension Fund, the Indiana
Teacher’s Retirement Fund, and the state’s Major Moves Construction Fund, claim
that the deal as structured unfairly favors the interests of Chrysler’s
unsecured stakeholders ahead of those of secured debtholders.

They also challenged the constitutionality of the U.S. Treasury Department’s
use of Troubled Asset Relief Program, or TARP, funds to supply Chrysler’s
bankruptcy protection financing.

Late Sunday, U.S. Judge Arthur Gonzalez, the bankruptcy judge overseeing
Chrysler’s case, issued a ruling approving the sale following three marathon
days of testimony and arguments. Gonzalez also ruled that the funds do not have
the standing to challenge the use of TARP money because they will receive their
fair share of the $2 billion set aside for secured debtholders, which is more
than they would have received if Chrysler had liquidated.

Under the terms of the agreement, a United Auto Workers union retiree health
care trust will receive a 55-percent stake in the new company, while Fiat will
get a 20-percent stake that can increase to 35 percent. The remaining 10
percent of the company will be owned by the U.S. and Canadian governments.

In the days leading up to Chrysler’s Chapter 11 filing, the automaker struck a
deal with the majority of secured lenders to give them $2 billion in cash, or
29 cents on the dollar, to erase the $6.9 billion in debt. But some of the
debtholders balked and the automaker was forced to file for bankruptcy
protection on April 30.

The Indiana
funds hold $42.5 million, or less than 1 percent, of Chrysler’s total $6.9
billion in secured debt. They bought the debt in July 2008 for 43 cents on the

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