Chrysler LLC could get federal bankruptcy court approval on Tuesday to trim its dealer network by a quarter, although opponents want any order delayed until the U.S. Supreme Court rules on the sale of the company.

The judge overseeing the case said he would issue a ruling by the end of the day on Tuesday.

Chrysler lawyers asked the judge to make any order approving the rejection of 789 dealer contracts to be effective immediately, saying a delay would force the carmaker to adjust its bankruptcy financing.

No dealer wants to be rejected. We understand that, said Chrysler lawyer Kevyn Orr, adding that the debtor's business judgment had to prevail, and that bankruptcy law did give dealerships special protections.

Opponents want more time to keep their dealerships open to clear inventory and to continue providing warranty services.

Discussions between the parties and the judge centered on the timing of the order. The U.S. Supreme Court complicated the proceedings on Monday when it delayed the automaker's sale to a Fiat-led group pending further review.

If the Supreme Court continues the stay beyond today, which we think likely, any rejection should not be effective until the Supreme Court situation is clear, said Stephen Lerner, an attorney at Squire Sanders & Dempsey who represents more than 300 dealers.

Arthur Gonzalez, a judge with the U.S. Bankruptcy Court for the Southern District of New York in Manhattan, had indicated last week he would approve the motion, largely because the dealers were not part of the sale to a Fiat-led group.

Orr said Chrysler's bankruptcy financing did not budget for having the added dealers.

Chrysler's bankruptcy financing is providing marketing funds to the dealers, allowing them to offer incentives to potential buyers.

CONSOLIDATING THE DEALERS

Chrysler wants to consolidate its network around dealers that offer all three of its brands -- Dodge, Jeep and Chrysler -- and wants fewer, more profitable dealers that can invest in their locations.

About 98 percent of the vehicles at rejected dealers have been reallocated to stores that will be carried to the new Fiat-led Chrysler, the Chrysler attorneys said Tuesday.

Chrysler also addressed some concerns of several states that have opposed the motion to reject dealerships, which are heavily regulated under state law.

Dealers have argued that rejecting the franchises will not save Chrysler much money but could hurt the viability of a reorganized automaker when it comes out of bankruptcy.

Chrysler's job is to look out for the interests of the estate, not of the new company, Lerner said.

In re: Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002.

(Editing by Gerald E. McCormick)

Chrysler