June 9 (Bloomberg) -- Chrysler LLC, planning to shed 25 percent of its dealers, guaranteed those losing their franchises that it will find others to take their unsold vehicles and extended a deadline to transfer the cars and trucks.

Dealers slated to be eliminated are protesting rejection of their contracts in U.S. Bankruptcy Court in New York today. The company will give the 789 dealers being rejected until June 15 to sign paperwork that lets them transfer vehicles to others that will keep operating, Chrysler lawyer Kevyn Orr said in court. That deadline had been today.

“We are now close enough to guarantee that we will redistribute 100 percent of the affected inventory,” Steven Landry, Chrysler’s executive vice president for North American sales, said in a note to rejected dealers on June 5.

Chrysler wants to trim its dealer ranks from 3,188 under a plan to sell most of its assets to a new company led by Fiat SpA. U.S. Bankruptcy Judge Arthur Gonzalez today is hearing closing arguments in Chrysler’s motion to reject the dealers, even as the Fiat deal was put on hold by a stay issued by the Supreme Court yesterday.

The Indiana state pension funds challenging the deal continued their appeal of Gonzalez’s approval of it, going to the higher court after the Second Circuit upheld his ruling.

Chrysler, based in Auburn Hills, Michigan, has argued that reducing the number of dealers is critical to the viability of the new company it plans to create with Turin, Italy-based Fiat.

One Jeep Left

Ambassador Auto Service, a Jeep dealership in Moscow, Idaho, had one vehicle left, an orange 2009 Compass with a listed price of $23,000, owner Phillip Mack said today. He said he was willing to sell the sport-utility vehicle for $18,500.

The SUV will remain for sale until the Supreme Court rules on Chrysler’s asset plan, Mack said.

“I don’t expect the deal will unwind and we’ll end up back in the good graces of Chrysler,” he said. “At best it’s a temporary delay.”

Landry said in his June 5 note that as of that date Chrysler had found dealers willing to purchase all but 400 vehicles from the rejected franchises and would be able to find homes for the rest by today.

The dealers being eliminated had 42,000 vehicles in inventory on May 14, when the automaker announced which outlets it would keep. The rejected dealers sold 16,000 vehicles through last month.

Those retailers can transfer vehicles to other dealers and get out of their loan obligations or be reimbursed for the price of the vehicle if they pay a $350 inspection and transfer fee. Chrysler has arranged to begin moving the transferred vehicles beginning tomorrow, said Carrie McElwee, a company spokeswoman.

‘Inextricably Intertwined’

Stephen Lerner, a lawyer for a committee of dealers who would lose their franchises, told Gonzalez today that any ruling to approve the rejection of those outlets can’t be considered effective until the Supreme Court resolves the issue.

“The debtors made clear that this motion was inextricably intertwined with its sale motion,” Lerner said. “Rejection shouldn’t be effective until the sale closes.”

Gonzalez hasn’t yet commented on the issue.

“Isn’t it a great country when a company can change its name and negate its debts,” said Aaron Beecher, 87, owner of ABC Motors, which sells Jeep and Chrysler vehicles in Valley Stream, New York. “It’s all Obama.”

Beecher said he had four vehicles left today and will take down his Jeep and Chrysler signs in a few weeks.

The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

To contact the reporters on this story: Tiffany Kary in New York Bankruptcy Court at tkary@bloomberg.net; Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

Last Updated: June 9, 2009 13:13 EDT