Order Sets Procedures and Scheduling for Assumption and Rejection of Dealer Agreements

On May 7, Judge Gonzalez signed the order approving the bidding procedures and scheduling the final hearing for the sale of substantially all of Old Chrysler’s assets to New Chrysler for May 27. Of interest to dealers, certain procedures were adopted to govern the assumption and assignment of dealer agreements in connection with the sale:

• No later than May 14, Old Chrysler must file the initial list of the dealer agreements that it intends to assume and assign over to New Chrysler.

• With the consent or at the request of New Chrysler, Old Chrysler may designate additional dealer agreements for assumption and assignment as late as 30 days after the closing of the sale transaction.

• New Chrysler has discretion whether to accept dealer agreements designated by Old Chrysler for assignment. No later than June 12, New Chrysler must file its initial list of those dealer agreements it has decided to accept and New Chrysler has up to 30 days after the closing to accept assignment of the rest of the designated dealer agreements.

• Any dealer agreement not affirmatively accepted by New Chrysler is not deemed assumed and assigned and will remain with Old Chrysler and probably be rejected.

This multi-step process of assumption, assignment and acceptance of dealer agreements provides only some glimmer of hope for dealers not on the initial list of designated dealer agreements. Borderline dealerships may be able to convince New or Old Chrysler to have them added to the list of dealer agreements designated for assumption and assignment for up to 30 days after the closing. Conversely however, New Chrysler can refuse to accept any dealer agreement designated by Old Chrysler for assignment for that same 30-day post closing period. As Yogi Berra famously said, “it ain’t over till it’s over.”

Although the initial list of dealer agreements designated for assumption and assignment is probably already set in stone, one can easily foresee New and Old Chrysler using the later stages of this process to extract concessions from dealers desperate to have their dealer agreements placed on the list designated for assumption and assignment by Old Chrysler and to have their agreements ultimately accepted by New Chrysler. In fact one such strong-arm tactic is written directly into the May 7 Order. The Order specifically states that no old-style Direct Dealer Agreements will be assigned to and assumed by New Chrysler. Dealers holding such agreements must agree to enter into the new Sales and Service Agreement in order to be assumed and assigned.

The time frame for such horse-trading may be very short. As set forth above, Old Chrysler must file its initial list of dealer agreements designated for assignment and assumption by May 14 (but may continue to designate additional dealer agreements until 30 days after closing). New Chrysler must then file its initial list of designated dealer agreements that it accepts for assignment by June 12 (but may continue to accept assignment of dealer agreement until 30 days after the closing). However, the Master Transaction Agreement among Old Chrysler, New Chrysler and Fiat contains a provision under which that contract may automatically terminate if not closed on or before June 15. If that date holds, the 30-day post closing window will close on July 14. Only then will it be over.