GM pulling plug on 1,100 'underperforming' dealers

DETROIT -- General Motors gm said Friday that it will inform about 1,100 dealers — 18% of its 5,969 stores — that the automaker no longer "sees them as part of its dealer network on a long-term basis."

GM said it would not release the names of dealers being cut. "As independently owned businesses, dealer owners will make their own decisions if and when they want to make this information public," the company said.

Together with a similar announcement by bankrupt Chrysler on Thursday, almost 1,900 U.S. auto retailers have been put on notice that they are being eliminated by the two embattled automakers.

The unprecedented closures taken under the oversight of the Obama administration's autos task force puts more than 100,000 jobs at risk across the United States and shows the spreading economic pain from the restructuring of the two Detroit-based automakers.

The Treasury Department put out a statement that said in part, "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 the President?s intervention, the entire GM and Chrysler dealer networks could have been lost.

"By supporting a restructuring that results in stronger car companies – supported by efficient and effective dealer networks – this process will not only provide more stability and certainty for current employees but the prospect for future employment growth," the statement said.

GM said in most cases existing franchise agreements run through October 2010.

The automaker described the dealers being let go as "underperforming" and having "very small sales."

"We are telling them basically that you are not going to fit into the picture long term, but between now and then we will help wind the business down the best way individually with each dealer," GM spokesman John McDonaldsaid.

"We have said from the beginning that our dealers are not a problem, but an asset for General Motors," said Mark LaNeve, GM vice president of sales service and marketing. "However it is imperative that a healthy, viable GM have a healthy, viable dealer body that cannot only survive but prosper during cyclical downturns. It is obvious that almost all parts of GM, including the dealer body, must get smaller and more efficient."

What's more, about 470 Saturn, Hummer and Saab dealers will soon be updated on the status of those brands. GM is trying to sell or wind them down.

"While additional cuts will be made, we believe the vast majority, over 90%, of the remaining dealers will be offered a chance to remain with GM," the company said. "However, specific dealer issues, further attrition and additional possible dealer network actions are expected to bring the number of future GM dealers to around 3,600 by the end of 2010."

LaNeve added: "We are not terminating any dealerships today."

The dealer reductions are part of GM's plans to reorganize the company so it can survive long term. The company is staying afloat on $15.4 billion in taxpayer loans and needs another $11.6 billion to keep going.

It faces a June 1 deadline to restructure its debt outside of court or else go into bankruptcy, something GM CEO Fritz Henderson has said is more probable then not.

GM dealers affected by the closure plans received letters by express mail Friday morning telling them that the automaker did not see how it could have a "productive business relationship" with them after 2010.

GM retailers who did not receive the express mail learned that they had been spared.

"It's kind of like 'Dancing with the Stars'," said Richard Genthe, a Chevrolet dealer in Southgate, Mich. "You're safe. You get to go ahead into next week."

The elimination of U.S. dealerships and the jobs that go with them, was an anticipated, but painful, part of the U.S. auto industry shake-up following the collapse in U.S. auto sales to less than 10 million a year from more than 16 million two years ago.

Chrysler, which filed for bankruptcy protection April 30, plans to terminate 789 of its 3,181 dealerships by early June, a move that could cost up to 40,000 jobs, according to the leading dealer trade group.

Chrysler on Friday sought to ease some of the industry-wide jitters when Chief Executive Robert Nardelli said the company would begin paying its suppliers for invoices sent prior to its filing for Chapter 11 bankruptcy protection.

Nardelli also said the company is moving ahead with plans to establish contractual relationships between the new Chrysler/Fiat company and suppliers.

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

Under the direction of the U.S. Treasury, GM is said to be close to a deal with the UAW that would cut its hourly labor costs by more than $1 billion a year, the Wall Street Journal said, citing people familiar with the matter.

GM expects to halve its remaining cash outlays for retiree health costs, to about $10 billion, and supplement that contribution by giving the union a 39% equity stake in the reorganized company, the people told the newspaper.