Chrysler's Rejection Motion Granted

Closing arguments took place today in connection with Chrysler's motion to reject 789 dealer agreements. Later this afternoon the Bankruptcy Court granted the rejection motion, effective immediately. Although Chrysler accomplished a major milestone, the order ultimately entered by the Bankruptcy Court was significantly watered down compared to the order originally proposed by Chrysler. The final Order may be found here. A blackline comparison showing changes between Chrysler's originally submitted order and its final submitted order may be found here at Annex 2.

Of particular note, Chrysler agreed to reject all site control agreements related to rejected franchise agreements. Site control agreements take many forms; however, a typical site control agreement took the form of an option agreement. In a typical option arrangement, in exchange for Chrysler's participation in costs to upgrade a facility, the dealer would grant Chrysler an option to purchase or lease the dealership facilty for a below market price in the event the dealer terminated operations. Other forms of site control might involve a lease-and-lease-back arrangement. Through such site control agreements, Chrysler could effectively control the facility and property at which a rejected dealership operated.

It its original filings, Chrysler sought to maintain in place for itself such site control agreements, notwithstanding the fact that it was Chrysler itself that was causing the dealer to cease dealership operations by rejecting such dealer's franchise agreements. Apparently realizing it sought to conquer a 'bridge too far,' Chrysler ultimately agreed that if it rejected a franchise agreement, it would also reject any site control agreement related thereto.

GM Files First Day Motion Affecting Dealers

Among GM's First Day Motions in its Chapter 11 bankruptcy proceeding is its motionfor an order authorizing GM to honor prepetition obligations to customers and dealers and to continue warranty, customer and dealer programs in the ordinary course of business. That motion is found here. The order was signed the same day and is found here.

GM seeks the authority to, in its sole discretion, honor, perform, replace, renew, amend or terminate its Customer Programs (defined to include warranty programs, recall programs, sales incentive programs, dealer support programs, and customer rebates and allowances). The warranty programs include both customer warranties and dealer reimbursement for warranty parts and labor. Sales incentive programs include both consumer and dealer focused programs. Dealer support programs include payments of hold-backs, floor plan assistance, regional marketing support, vehicle delivery and handling, etc.

GM Files Chapter 11 Bankruptcy

In a one-two punch, on the same day that Chrysler's 363 Motion was granted, General Motors Corporation (together with its affiliates Saturn, LLC and Saturn Distribution Corporation filed a proceeding seeking reorganization under Chapter 11 of the Bankruptcy Code. General Motors' petition is found here.

Chrysler's 363 Sale Motion Granted

As expected, Bankruptcy Judge Authur Gonzalez issued an order granting Chrysler's motion, pursuant to section 363 of the Bankruptcy Code, seeking authorization sell substantially all of its operating assets to the entity affectionately known as New Chrysler. New Chrysler will be owned by Fiat S.p.A., the United Auto Workers Voluntary Employee Benefits Association and the American and Canadian governments. Notably absent from the assets Chrysler is selling to New Chrysler are franchise agreements with 789 Chrysler, Dodge and Jeep dealers. Those agreements are the subject of Chrysler's motion to reject which is set for a hearing to begin on June 3.