http://detnews.com/article/20090516/AUTO01/905160313/
GM to cut 1,100 dealers

Move could pressure UAW, bondholders to make concessions

Robert Snell / The Detroit News

In moving to eliminate 1,100 underperforming dealerships by late next year, General Motors Corp. on Friday sent a message to bondholders and the United Auto Workers that all stakeholders are being asked to make sacrifices, industry experts said.

GM has two weeks left to reduce its debt and wring money-saving concessions from the union that will cut health care and other labor costs or face a probable bankruptcy filing.

"That's what this is all about," said one industry expert who has advised GM and did not wish to be identified. "They've got to be seen as forcing everyone to make sacrifices."

GM's action compounds the pain for dealers and communities already reeling from Chrysler LLC's plan, announced Thursday, to eliminate 789 retailers by early next month.

Together, the moves promise to dramatically shrink the number of dealerships nationwide. That could boost the profitability of individual stores but also result in higher prices for consumers, who will find it harder to pit dealers against each other or receive steep discounts once competition decreases.

GM, operating on $15.4 billion in federal loans, is working to cut deals with key stakeholders and racing to trim workers, brands and plants, as well as dealerships, in hopes of qualifying for billions in additional aid. The automaker faces a June 1 restructuring deadline or could be forced into bankruptcy court.

"Without a (bankruptcy) filing, these would be hard to enforce," Mark LaNeve, GM vice president of sales service and marketing, said of the dealership closures. "We're not looking to get into a legal battle."

But a legal battle might be unavoidable if dealers file lawsuits before a GM bankruptcy. Once in federal bankruptcy court, GM could try to immediately terminate dealer franchise agreements, which are protected under state law.

"Everything could change," said analyst Joe Phillippi of AutoTrends Consulting Inc. in Short Hills, N.J.

Strategy for survival

GM did not release the names of the dealers that received letters Friday but one of the country's largest was on the list. Asbury Automotive Group, based in Duluth, Ga., was told its franchise agreements would not be renewed for its Chevrolet and Buick-Pontiac-GMC locations in Kissimmee, Fla.

The letter arrived a day after Chrysler notified Asbury it was terminating its Chrysler/Jeep dealership in Roswell, Ga.

"We understand that consolidation of their dealer networks is a critical component of Chrysler and GM's restructuring programs, and that it's important for all parties to bear some part of the burden," Charles R. Oglesby, Asbury's president and CEO, said in a statement.

There are about 92 GM franchises that belong to the Detroit Auto Dealers Association, which Friday had not been notified of how many members were on the automaker's list, said association spokesman Marc Harlow.

Eliminating underperforming dealerships is part of GM's plan to cut its U.S. dealer network about 40 percent by next year, from 5,969 to 3,600. That's a deeper and quicker cut than GM outlined in a Feb. 17 restructuring plan rejected by President Barack Obama's auto task force.

GM will shed about 500 additional dealerships by eliminating the Saab, Hummer and Saturn brands and another 400-500 dealers might be consolidated with other franchises. GM expects 400-600 dealerships to terminate the franchises voluntarily based on the struggling sales environment and economy. As part of the cuts, GM will buy back inventory, signage and parts.

"This is not something we did without a lot of deliberation," LaNeve said. "This leadership team had no choice. It's painful for dealers, but it will be good for the remaining dealers and our business long-term."

Cuts mean 63,000 lost jobs

The result could mean customers pay more for vehicles.

"You're not going to be able to go to four Chevrolet dealers within 25 minutes (of each other) and cross-shop," said auto analyst Aaron Bragman of IHS Global Insight. "And it lets the remaining dealers focus on competitors. If you're a Chevrolet dealer trying to compete with Toyota and Honda and Ford and three other Chevrolet dealers, it's a difficult situation."

Dealers who waited anxiously Friday for a letter from GM, exhaled after learning their franchise agreements would not be terminated.

"I am relieved and happy for our 75 employees," said George Fowler, general manager of Superior Pontiac-Buick-GMC in Dearborn. "We will redouble our efforts to sell our products and take care of our customers."

Unlike Chrysler, GM does not want to immediately terminate dealers. It will give them until late 2010 to sell remaining inventory and give employees a chance to find another job. Dealers also will have time to find another franchise, LaNeve said.

If GM terminated 1,100 dealerships immediately, the automaker would have to buy back thousands of vehicles. That would hurt residual values of cars, secondary markets and other dealers that aren't targeted for closure who would have to slash prices to compete.

"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," the Treasury Department said in a statement.

Cutting 1,100 GM dealerships will result in 63,000 lost jobs, according to the National Automobile Dealers Association.

The company's eventual plan to shut down about 40 percent of its U.S. dealership network will result in roughly 137,000 employees losing their jobs and eliminate an estimated $1.7 billion in sales tax revenue for state and local governments. Plus, GM will lose an estimated $35 billion in sales revenue, NADA said.

"We view GM's action with a profound sense of sadness and disappointment," the dealers trade group said in a statement.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, recognizes U.S. automakers want a successful dealer body comparable with foreign companies, especially Toyota Motor Corp., which has far fewer dealers. But the end result "won't be a dramatic decrease in cost."

That's because dealers are independent businesses that own their own property and buy cars. The automaker provides training, but dealerships are not cost centers like assembly plants.

Most of the dealers being eliminated have franchise agreements that expire at the end of October 2010.

rsnell@detnews.com (313) 222-2028 Staff Writers Bryce G. Hoffman and Alisa Priddle contributed.