GM eliminating about 1,100 dealer franchises

WASHINGTON • General Motors notified 1,100 of its dealers Friday that it would not renew their franchise contracts when they expire next year, slashing 18 percent of its sprawling retail network.

It was the automaker's first step in winding down dealerships as part of a major restructuring under way at the former American industrial icon.

GM plans to continue to trim its 6,000 dealers to between 3,600 and 4,000 by the end of 2010.

The news arrived in letters sent by next-day mail. They arrived just a day after Chrysler, which is in bankruptcy, announced plans to ax 789 of its 3,181 dealers.

"You have been identified as an underperforming dealer," GM said in its letter to the targeted dealers.

Chrysler's list of rejected dealers was made public by the bankruptcy court, setting off waves of staff meetings full of teary employees. But since GM's announcement was private, and the cancellations still months off, many owners kept the bad news to themselves.

"The dealers are being very quiet right now because they are very emotional," said Donald Hall, president and chief executive of the Virginia Automobile Dealers Association.

It was unclear late Friday whether General Motors would terminate any dealership franchises in Colorado Springs.

Attempts to reach owners of local dealerships with GM brands were largely unsuccessful Friday - except one, and he said he had good news.

"We are not receiving a letter of closing, and both of our stores will continue to operate as usual," said Jerry Colten, owner and general manager of Al Serra Chevrolet-VW-Hummer. "I expected us to be OK, but I didn't know whether there were some politics involved, so I really didn't know for sure. I think it's a peculiar thing for a manufacturer to step in and do this to dealerships. I think people should be allowed to just compete."

Instead of immediately terminating contracts, as Chrysler did, rejected GM dealerships are expected to wind down their businesses by October 2010.

Some dealers could receive financial incentives or help in selling their inventory. In early June, GM will follow up with another letter advising dealers how to shift their 65,000 vehicles and extra parts and transition employees.

Mark LaNeve, GM's vice president of sales, service and marketing, said it could be difficult to execute the plan to shrink the number of dealerships outside bankruptcy, because filing for federal Chapter 11 protection typically gives companies leverage over state franchise laws that protect dealers.

"Without a (bankruptcy) filing, these will be hard to enforce," he said.

Pete Ternes, a GM spokesman, said the company is aware that the automaker could face legal action from a number of dealers.

"That's why the evaluation process was so exhaustive," Ternes said.

Over 90 percent of the remaining dealers will be offered a chance to remain with the company.

Downsizing will help GM become a "leaner, more efficient, more flexible company," said LaNeve, calling reporters from his Cadillac Escalade.

About 400 to 500 of the GM dealers that are set for termination by the end of 2010 have been selling only about 35 vehicles per year, he said.

And many were in "danger of going out of business anyway" because their profitability is so low.

The sheer size of GM's dealer network was hurting business. Rising competition forced dealers to undercut one another on prices, lowering the products' residual value and damaging the company's future sales.

The automaker has announced it will no longer continue its Pontiac line and is now selling Saturn, Hummer and Saab.

The U.S. Treasury Department on Friday reiterated its sympathy for the dealers and emphasized that it did not play a role in the closures.

The federal government has provided $15.4 billion to GM and forced the ouster of its chief executive.

"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.

At the same time, GM is seeking to win wage and other concessions from the United Auto Workers. Those negotiations are being complicated by union concerns that roughly one-third of the company's projected future growth will be overseas.