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More Legal Challenges Against Chrysler Sale

Bondholders, consumer groups challenging government-orchestrated bankruptcy

June 7, 2009

• GM Offers Money-Back Guarantee • GM's Newest California Showroom: eBay • GM, Chrysler Personal Injury Victims Left Stranded • 'New GM" Exits Bankruptcy • Judge Greenlights GM Bankruptcy Plan • Obama Set to Sign 'Cash for Clunkers' Bill • States Challenge GM Sale • Supreme Court Okays Sale of Chrysler to Fiat • Supreme Court Blocks Chrysler Sale • GM To Scrap Medium-Duty Trucks • Penske Hopes to Drive Saturn Off GM's Lot • New Chrysler Agrees To Honor Old Lemon Law • Consumer Groups Appeal Chrysler's Lemon Law Reprieve • Dumped GM, Chrysler Dealers Not Going Away Quietly • The Hummer Lives to Fight Another Day • GM Files for Bankruptcy; Chrysler Gets Court Approval • Chrysler Sours on Lemon Law Obligations • UAW, GM Agree On New Contract • Consumer Groups Challenge Chrysler Bankruptcy • GM Notifying 1,100 Dealers They're Being Dumped • GM, Chrysler May Close 3,000 Dealers • GM Moves Up Saturn Execution, Plans to Drop 2,600 Dealers • GM Prepares to Scrap Pontiac • U.S. Carmakers Getting More Federal Aid • GM Cuts More Jobs, Eyes China --- • Consumer Complaints about GM • Consumer Complaints about Chrysler

The government-orchestrated bankruptcy of Chrysler and creation of a new company isn’t final just yet, and two groups are going to court this week to slam on the brakes.

A small group of Chrysler bondholders Saturday filed an appeal with the U.S. Supreme Court, asking the high court to block the sale from closing this week while they continue the appeals process. The plaintiffs are a group of Indiana pension funds who are challenging the asset allocations under the new corporate structure.

Italian carmaker Fiat is acquiring most of Chrysler’s stock, with another large segment to be owned by the United Auto Workers Union health care fund. Bondholders have seen the value of their loans to Chrysler slashed under the deal to about 29 cents on the dollar.

Early Sunday, meanwhile, a coalition of consumer groups also filed for a stay, claiming the deal would shield New Chrysler from injury lawsuits stemming from accidents involving existing Chrysler vehicles. Chrysler earlier agreed to honor consumers' Lemon Law rights.

If granted, a stay would provide additional time for the pensions and consumer groups to lodge a formal appeal before the Supreme Court.

Meanwhile, Chrysler dealers who had their franchises revoked in the bankruptcy are back in court this week trying to reverse the carmaker’s decision. In emotional testimony late last week, some dealers slated for closing argued the selection process was arbitrary, and in some cases retaliatory.

The dealers may have a tough time making their case. New York Bankruptcy Judge Arthur Gonzalez suggested that Chrysler had made a strong argument for the need to reduce the number of dealers selling its cars.

Chrysler explained its decision to close dealerships by saying those targeted for closure weren’t meeting minimum sales targets, or maintaining high enough levels of customer service or capitalization. Chrysler is closing 789 of its 3,200 dealerships.

As of now, Gonzalez has approved the sale of Chrysler’s assets to a new company owned primarily by Fiat and the UAW’s health care fund.

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