Dealers prepare for worst if GM files Chapter 11 bankruptcy

DETROIT -- If the automaker does file, any money owed to dealers for warranty work they've done on cars or for rebates they've already paid to buyers could just disappear, warns Scott Silverman, an attorney.

Many dealers are owed hundreds of thousands of dollars from manufacturers at any given time, says Silverman, partner at law firm McCarter & English who specializes in representing dealers. He says he's been prepping Massachusetts-area dealers for a GM Chapter 11 filing with seminars informing them of their rights and telling them to prepare for the worst.

A bigger issue for dealers down the road would be if a bankruptcy court let GM cancel their franchise agreements. GM already has said it needs fewer dealers and also said it's not going to buy out dealers as it did at huge cost when it closed Oldsmobile. But dealers first must keep from going under because of cash flow problems.

"They are going to have to plan to operate without any expectation of when and if that money is going to come in the door," Silverman says. "It's one issue of bankruptcy, but it's usually a jaw-dropping one for dealers who are already paper thin in the way they're dealing with operations."

Last week, GM CEO Fritz Henderson called a filing "probable." GM has been operating on a $13.4 billion lifeline from the government and has said that without more loans it could be forced into a bankruptcy. President Obama has said it must do significantly more to cut its costs by June 1 to get more aid.

All the bad GM news isn't helping dealers already suffering a massive sales decline. Jim Snell, a Dallas-area dealer of Buick, Pontiac and GMC vehicles, says he thinks his sales may have bottomed.

"They're not really picking up, and they're not getting any worse," he says. "If GM could get off the front page of the newspaper and the lead story on every TV news program you see, I think that would help."