AUBURN HILLS, Mich. — Chrysler LLC prevailed in a federal bankruptcy court decision last week, allowing the OEM to discontinue franchise agreements with 789 dealers across the U.S. and complete an alliance with Italian automaker Fiat SpA.

The decision was handed down by U.S. Bankruptcy Judge Arthur Gonzalez, who was apparently unmoved by dealers who argued that they needed more time to wind down their new-car operations and sell off inventory. "[The decision was] an exercise of sound business judgment by [Chrysler] made in good faith and for legitimate commercial reasons," Gonzalez wrote.

The affected dealers, who represent nearly 25 percent of the OEM's roster, were ordered to no longer display Chrysler signage or sell vehicles under manufacturer warranty or incentive programs. Unsold inventory can be redistributed by Chrysler under the terms of a program announced last month and extended through June 15.

Emergence from bankruptcy allowed Chrysler and Fiat to sign an agreement that will form a new company called Chrysler Group LLC. Fiat now holds a 20 percent ownership stake; that number can increase if the company reaches certain benchmarks or elects to buy a majority share once certain federal loans are repaid.

"I am pleased to report that we have closed the alliance agreement between Chrysler Group LLC and Fiat SpA and have emerged from bankruptcy in record time," former Chrysler chairman and CEO Robert Nardelli wrote in a farewell letter. "Chrysler Group now is a leaner, healthier and more robust company ready to compete in the challenging economy as an important player in the global automotive industry."

Chairman Robert Kidder and Chrysler Group and Fiat CEO Sergio Marchionne will lead the new company. After reopening shuttered plants, their next task will be to find ways to marry the Italian company's small-car platforms and fuel-efficient technologies with Chrysler, Dodge and Jeep designs. Chrysler Group LLC will also operate a parts division under the established Mopar brand.