GM to cut out 1 600 dealerships in US
May 18, 2009
By David Bailey and Kevin Krolicki Detroit
General Motors (GM) would drop about 1 600 US dealers as it struggled to slash billions of dollars in operating costs and debt ahead of an expected bankruptcy filing by the end of this month, the car maker said on Friday.
Taken together with a similar announcement by bankrupt Chrysler a day earlier, more than 2 300 US car retailers have been put on notice that they are being eliminated by the two embattled car makers.
The unprecedented closures under the direction of the US government put an estimated 100 000 jobs at risk and show the economic pain from the collapse of the two Detroit-based car makers spreading across the country.
"This is going to be a mess," said Atlanta-based dealer consultant Jim Ziegler. "These dealerships are crucial to the local communities. Dealers are big advertisers. There will be a lot of ripple effects."
GM said it planned to drop about 100 of its smaller and less profitable dealerships by letting their franchise agreements expire when they came due in October next year. It expected to drop another 470 dealerships by cutting its Saab, Hummer and Saturn brands.
After other dealerships fold or merge in coming months, GM's plan is to end up with about 3 600 showrooms by the end of next year for its Chevy, Cadillac, Buick and GMC brands.
That would represent a 40 percent reduction in GM's dealership network that has been protected until now by a patchwork of state franchise laws that made car makers reluctant to move quickly to drop dealers.
GM spent more than $1 billion (R8.7bn) to close its Oldsmobile division and some 2 800 dealerships earlier this decade, an experience that made it reluctant to take on its widely recognised problem of having too many dealers competing for shrinking US car sales.
GM is not offering dealers any compensation this time, but it offered to help them wind down their operations.
The risk of a legal battle is another reason analysts believe it will follow Chrysler into a bankruptcy filing.
"They may want to take legal action. We will have to see," said Mark LaNeve, GM's sales chief.
GM dealers targeted for closure were notified on Friday morning by letters. Other GM dealers learnt they had been spared when no letter arrived.
The National Automobile Dealers Association had lobbied the US Congress and the cars task force under the treasury department to stop or slow the closures.
"We view GM's action with a profound sense of sadness and disappointment," the business group said in a statement.
Analysts have argued that Detroit's massive dealer networks have become a liability, particularly in big cities and suburbs where dealers selling the same models have been forced to compete against each other with advertising and incentives.
US car sales are at the lowest levels since the early 1980s, with no prospect of a short-term rebound. On the annualised basis tracked by analysts, sales are less than 10 million vehicles, down from more than 16 million two years ago.
AutoNation, the largest US dealership chain, said it had six GM dealerships targeted for closure, but that those outlets had not contributed to its earnings last year.
Toyota Motor, which has a bigger market share than Ford Motor, has far fewer US dealers: fewer than 1 500 showrooms compared with 3 800 for Ford.
Chrysler plans to terminate 789 of its 3 181 dealerships by next month. - Reuters
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