Chrysler Group could again face the prospect of liquidation if legislation aimed at reversing its decision to terminate contracts with 789 dealers becomes law, a company executive said on Wednesday.

Louann Van Der Wiele, a senior company lawyer, told a House Judiciary subcommittee that Chrysler faces a tough road ahead and efforts to restore dealer franchise rights will simply take Chrysler back to the future without the same options for survival that it had this spring.

Complete liquidation, with all of its dire consequences could follow, Van Der Wiele said.

Chrysler was on the brink of extinction when it entered bankruptcy on April 30, emerging a month later in an alliance with Italy's Fiat and billions in U.S. government financing to help it retool its product lineup and better compete with leaner rivals.

General Motors Corp sought court protection on June 1, also emerging several weeks later with lower debt, new labor concessions, billions in government aid and a plan to shave 1,300 dealers from its retail network. Automakers say they will save money and streamline retail operations with fewer dealers, who are separate businesses that purchase the vehicles they sell directly from the manufacturers.

Congress is considering legislation to force GM and Chrysler to address assertions from dealership executives that their franchise rights were trampled on during the automakers' bankruptcies.

Dealer lobbyists and prominent showroom owners have waged an aggressive campaign to force government action, saying more jobs were at stake amid a deep recession.

We all want the auto manufacturers to succeed but it's wrong to condone the abuse of bankruptcy law and the spending of taxpayer dollars to needlessly eliminate 169,000 jobs, said Jack Fitzgerald, owner of Fitzgerald Auto Malls.

The dealer measure easily cleared the House of Representatives as part of a larger must-pass annual spending bill but it faces an uncertain fate in the Senate where support at the moment is less robust.

Senate Majority Leader Harry Reid has said dealer legislation is not a top priority.

The Obama administration's autos task force, which facilitated much of the more than $60 billion in aid extended to GM and Chrysler and positioned them for bankruptcy, opposes congressional intervention.

But some lawmakers are using the threat of legislation to pressure the parties to reach a settlement, which the Obama administration has said it would not oppose.

GM has begun paying dealers $600 million as part of dealer wind-down agreements through 2010, Michael Robinson, the company's senior corporate counsel for North America, told the Judiciary subcommittee.

Chrysler has no similar financial arrangement in place for dealers but has redistributed most of the unsold inventory and special tooling at terminated franchises.

While they fear legislation, the automakers note that their efforts to reduce dealer networks received the support of the courts, which approved their business plans in bankruptcy, and the autos task force.

They were commercial decisions the companies made, Ron Bloom, the task force's day to day leader, told the Judiciary Committee on Tuesday. It's a very difficult situation.

Bloom agrees that legislation would make the situation worse not better and that dialogue to resolve the matter is preferable. One solution, according to Bloom, may be to negotiate a framework where terminated dealers receive preference for

(Reporting by John Crawley; Editing Bernard Orr)