Details of the Sale to New Chrysler

On May 3, Chrysler filed a Motion for an Order (A) Approving Bidding Procedures and Bidder Protections for the Sale of Substantially All of the Debtors Assets and (B) Scheduling a Final Sale Hearing and Approving the Form and Manner of Notice Thereof; and for an Order (A) Authorizing the Sale of Substantially All of the Debtors Assets, Free and Clear of Liens, Claims, Interests and Encumbrances, (B) Authorizing the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection Therewith and Related Procedures.

The proposed deal is this: "Old Chrysler" will sell substantially all of its assets to "New Chrysler" free and clear of pre-petition liens, claims, interests and other encumbrances for $2 billion. Among the assets New Chrysler is purchasing are most of Old Chrysler's franchise agreements with its dealers. In addition, New Chrysler will assume certain liabilites of Old Chrylser. The assumed liabilties include certain union liabilities; warranty and product liability claims; and liabilities related to the contracts New Chrysler is taking as part of the deal.

Dealer franchise agreements will be subject to two rounds of culling under this plan. First, Old Chrysler will designate most of its franchise agreements for sale to New Chrysler. The rest will be rejected by Old Chrysler, leaving those dealers with an unsecured claim for contractual and statutory damages, which may be worth little or nothing. However, that is not the end. Old Chrysler has up to 90 days after the closing to designate additional franchise agreements for sale to New Chrysler. Conversely however, New Chrysler has up to 90 days after the closing of the sale transaction to identify dealer franchise agreements they do not wish to purchase. Those agreements will be turned back to Old Chrysler and rejected. The decision will ultimately rest with New Chrysler.

In short, while it is certainly a good sign that a dealer makes it past the first hurdle, New Chrysler will have a full 90 days after the closing to return unwanted dealers to Old Chrysler back in the bankrupcty proceeding. One might expect New Chrylser to use this power to force concessions on dealers who thought they were in the clear.