The U.S. Supreme Court has halted the sale of most of Chrysler's assets to Italian automaker Fiat, in a move that some analysts fear could scuttle Chrysler's Chapter 11 bankruptcy plans and send the automaker into liquidation.

The New York Times reports, "The Obama administration's effort to hurry Chrysler through bankruptcy court ran into an unexpected last-minute delay on Monday, when the Supreme Court said it could consider whether to hear the objections of three Indiana state funds and consumer groups.  The implications of the court's move - Justice Ruth Bader Ginsburg issued a one-sentence order that amounted to a holding action - are unclear."

The three Indiana pension and construction funds had asked the court to issue a stay temporarily blocking the sale so that they could pursue litigation arguing that the sale would wipe out their holding unnecessarily.  The Wall Street Journal explains, "The U.S.-brokered sale of Chrysler, by forcing senior secured lenders to write down their loans to the auto maker, broke with longstanding tradition concerning rights in a bankruptcy: Senior secured lenders usually are paid in full before lower-priority creditors receive anything."  The three pension funds are senior secured lenders.  However, under the Obama administration's bankruptcy plan for Chrysler, "a United Auto Workers retiree health-care trust got a 55% equity stake and $4.5 billion note for its about $10.5 billion unsecured claim while Fiat stands to get an initial 20% stake."  The remainder of the company would be held by the U.S. government.

The move could cause Fiat to pull out of the Chrysler sale completely.  The Washington Post explains, "Fiat can back out of the deal if it is not finalized by Monday, and the government has warned that the only alternative would be to force the nation's third-largest automaker into liquidation, throwing the industry in turmoil and leaving tens of thousands of people without jobs." 

A failure of the sale could have implications beyond Chrysler as well.  The Post notes, "If the court backs some of the claims, it could disrupt plans to rescue General Motors and weaken the government's hand in stabilizing the troubled economy."

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