NY judge: Old Chrysler has little need for dealers

Chrysler will have little need for the hundreds of dealers it wants to close if it completes its sale to Fiat as expected, the judge overseeing the automaker's bankruptcy said on Thursday.

Earlier this week, Judge Arthur Gonzalez approved the sale of most of Chrysler's assets to Italian automaker Fiat SpA. The 789 dealerships that are slated for closure will remain in bankruptcy with the Old Chrysler, which also includes unwanted factories.

At the start of hearings in Manhattan's bankruptcy court on a motion to close the dealerships, 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, Gonzalez said, but added there may be a case for the dealers to pursue damages.

Chrysler filed for bankruptcy on April 30 and said about two weeks later that it was shutting a quarter of its dealer network. The company said it wanted to slim down the number of stores to better match the dramatic drop in sales, which have fallen more than 40 percent during the recession.

The dealers want to show that Chrysler did not use sound business judgment in choosing the dealers to close.

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 could 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.

At Thursday's hearings, dealers from New York and Florida testified about the relative strength of their businesses in an attempt to show Chrysler was not closing its weakest locations.

A New Chrysler will emerge from bankruptcy in a few days, pending an appeal of the Fiat sale. The 789 dealers will be severed from Chrysler on June 9. Some will remain open to sell used cars.

The case is In re: Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002.