TOPICS > Economy

GM Plans 18 Percent Reduction in Dealer Network

BY Admin  May 15, 2009 at 3:50 PM EST

GM CEO and President Fritz Henderson; Getty Images

GM said it plans to drop about 1,100 of its smaller and less
profitable dealerships by letting their franchise agreements expire in October
2010. The embattled automaker also plans to shed another 470 dealerships by
selling or phasing out its Saab, Hummer and Saturn brands.

GM has already been phasing out its Pontiac brand and has
fewer than 100 stand-alone Pontiac dealerships left.

Unlike Chrysler, which filed a list of the 789 dealerships
it intends to close with the U.S. Bankruptcy Court in New York, GM said it
won’t distribute the list of planned closures to the media, saying it is
“not a matter of public record.”

Following GM’s announcement, White House spokesman Robert
Gibbs said that GM has a number of difficult decisions to make about its
business but that there are several weeks to go before it can be determined if
a bankruptcy is necessary.

The Obama administration, which has offered financial
lifelines to both Chrysler and GM, renewed its pledge to stand behind GM during
the remainder of its restructuring.

In a statement, the Treasury Department said that the
government’s auto task force continues to work with GM and “all its
stakeholders” ahead of a June 1 deadline to restructure its debt, cement
concessions with its union and show it can be viable.

GM has said it expects to file for bankruptcy if its
restructuring efforts fail by the deadline.

“As difficult as these announcements are for the
dealers that will no longer be selling GM and Chrysler cars and the communities
in which they operate, without (President Barack Obama’s) intervention the
entire GM and Chrysler dealer networks could have been lost,” the
statement read.

The agency said the administration’s auto task force was not
involved in decision making on GM or Chrysler dealer terminations. Both
companies have too many dealerships for too few sales and are slashing costs as
they restructure.

The administration would continue to work to help ensure
that financing is available to “creditworthy” dealers and help boost
demand for cars, the Treasury said.

As dealerships fold or merge in the coming year, the plan is
for GM to eventually end up with about 3,600 showrooms for its Chevy, Cadillac,
Buick and GMC brands.

That would represent a 40 percent reduction in its far-flung
dealership network that has been protected until now by a patchwork of state
franchise laws that made automakers slow to drop dealers.

Earlier this decade, GM spent more than $1 billion to close
its Oldsmobile division and shut down some 2,800 dealerships, an experience
that made it reluctant to take on its widely recognized problem of having too
many dealers competing for a shrinking share of U.S. auto sales.

But this time, GM is not offering dealers any compensation,
and the risk of a drawn-out legal battle is another reason analysts believe it
will follow Chrysler into a bankruptcy filing, Reuters reported.

“They may want to take legal action. We will have to
see,” GM sales chief Mark LaNeve said of the dealers.

GM dealers targeted for closure were notified on Friday
morning by letters sent overnight via Federal Express. Other GM dealers learned
they had been spared when no letter arrived.

“It’s kind of like ‘Dancing with the Stars,’” said
Richard Genthe, a Chevrolet dealer in Southgate, Michigan. “You’re safe.
You get to go ahead into next week.”

GM remains out of bankruptcy but has said that a filing is
likely because of its need to cut $27 billion in bond debt and other costs.

While GM continues to shrink its operations, the company
continues to talk with its largest union, the United Auto Workers, about a deal
to slash employee costs.