Image: Dealership
Lisa Poole  /  AP
Melrose Dodge in Melrose, Mass., had cleared out its main showroom by Friday. The dealership was among hundreds that will lose their franchise agreements Tuesday.
updated 6/8/2009 8:02:47 PM ET 2009-06-09T00:02:47

Chrysler’s five weeks of breakneck-speed bankruptcy proceedings came to a screeching — but possibly temporary — halt Monday, when a Supreme Court justice delayed its sale of assets to Italy’s Fiat.

The move could derail the government’s ambitious plan for the U.S. automaker to blaze a path to profitability without the burden of many of its debts.

Justice Ruth Bader Ginsburg issued a stay just a week before Chrysler says the government-backed sale must go through. After June 15, Fiat could walk away from the deal and leave the struggling U.S. automaker with little option but to liquidate.

It was unclear late Monday just how long the stay would last, or if the high court planned to take up the case.

Chrysler said it had no comment until it receives further information from the court.

Video: The challenger Ginsburg said in her one-sentence order that the sale is “stayed pending further order,” indicating that the delay may only be temporary. Ginsburg could decide on her own whether to end the delay, or she could ask the full court to decide.

A federal appeals court in New York approved the sale Friday, but gave opponents until 4 p.m. Monday to try to get the high court to intervene. Ginsburg issued her order minutes before the deadline.

Despite the aggressive objections of a trio of Indiana state pension and construction funds that own a small part of Chrysler’s secured debt, the automaker has moved swiftly through the Chapter 11 process.

The Auburn Hills, Mich., company received bankruptcy court approval for the sale just a month after filing for bankruptcy protection and had been expected to emerge from court oversight when the sale closed.

Chrysler’s ability to speed through the process has partially been a result of the involvement of the Obama administration’s auto task force, which provided $4.5 billion in bankruptcy financing and helped negotiate a deal between the company’s stakeholders.

Under a deal brokered in the days leading up to Chrysler’s April 30 Chapter 11 filing, Fiat will receive up to a 35 percent stake in the new company created by the sale, in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.

The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 percent stake.

Meanwhile, the automaker’s secured debtholders would get $2 billion in cash, or about 29 cents on the dollar, for their combined $6.9 billion in debt. Some of the debtholders balked at the deal, saying as secured lenders they deserved more.

A group of investment firms that held about 4 percent of Chrysler’s secured debt filed an objection to the sale shortly after the automaker’s Chapter 11 filing, but the group later dissolved, saying it didn’t have enough members to mount an effective challenge.

Later on, the Indiana funds, represented by the same law firm as the dissident debtholders, filed their own objection and eventually appealed to the 2nd U.S. Circuit Court of Appeals and the Supreme Court. They claim the sale unfairly favors Chrysler’s unsecured stakeholders such as the union ahead of secured debtholders like themselves.

The funds also are challenging the constitutionality of the Treasury Department’s use of money from the Troubled Asset Relief Program to supply Chrysler’s bankruptcy protection financing. They say the government did so without congressional authority.

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

Consumer groups and individuals with product-related lawsuits also are contesting a condition of the Chrysler sale that would release the company from product liability claims related to vehicles it sold before the asset sale to Fiat.

Compensation for such claims would have to be sought from the parts of the company not being sold to Fiat. But those assets have limited value and it’s doubtful that there will be anything available to pay out.

Chrysler also is working to reduce its ranks by 789 dealers, or about 25 percent, as part of its cost-cutting actions. But the move, which still needs bankruptcy court approval, is being challenged by a group representing more than 300 dealers, as well as individual dealers.

A hearing on the motion that began Thursday with the testimony of about a dozen dealers is scheduled to continue Tuesday with arguments. U.S. Judge Arthur Gonzalez is expected to rule after arguments conclude.

The appeals come as Congress scrutinizes the Obama administration’s restructuring of Chrysler and General Motors Corp. The Senate Banking Committee said it planned to call Ron Bloom, a senior adviser to the auto task force, and Edward Montgomery, who serves as the Obama administration’s director of recovery for auto communities and workers, to a hearing Wednesday.

Sen. Christopher Dodd, D-Conn., the committee’s chairman, planned to review the use of TARP funds to help the auto companies and look at whether taxpayers will receive a return on their investment.

GM and Chrysler executives faced questions last week from Congress over the elimination of hundreds of dealerships as part of the companies’ reorganizations.

Separately, a senior Obama administration official says Fiat will shake up management and change the culture of Chrysler if the courts allow the sale of its assets to the Italian automaker.

The official says management changes will go deeper than the departure of CEO Bob Nardelli and Vice Chairman Tom LaSorda. The official spoke on condition of anonymity because the changes have not been made public.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Stalled deal

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