GM Eliminating About 1,100 Dealer Franchises

By DAN STRUMPF and TOM KRISHER

AP Auto Writers

NEW YORK (AP) – A day after Chrysler LLC said it was cutting 800 dealerships, General Motors Corp. on Friday told about 1,100 of its U.S. dealers their franchises will be terminated late next year.

GM said the move targets “underperforming” dealers with small sales volumes and markets in which they are not competitive.

“Dealers are not a problem to GM; they’re an asset to GM. Too many dealers, in actuality, are a problem,” said Mark LaNeve, GM’s vice president of North American sales and marketing, in a conference call with reporters.

The company did not disclose the dealers it plans to eliminate and left it up to dealerships to reveal if their franchises will not be renewed.

The cuts are part of a larger GM plan to drop 2,600 of its 6,200 dealerships as the automaker tries to restructure to become profitable again.

The moves likely will cause the loss of thousands of jobs and governments will lose untold dollars in tax revenue as dealerships are forced to close.

Besides the 1,100 dealership cuts, the company will provide updates to about 470 Saturn, Hummer and Saab dealerships on the status of those brands, which it plans to sell.

Friday’s cuts will not be the last. GM said it expects to lose more dealers through attrition.

Ultimately, about 90 percent of the remaining dealerships will stay with GM, the company said.

FedEx letters bearing the bad news began arriving Friday morning at GM dealers around the country.

The letter states that dealers were judged on sales, customer service scores, location, condition of facilities and other criteria.

“Based on our review and current foreseeable market conditions and your dealership’s historical performance, we do not see that GM have a productive business relationship with (your dealership) over the long term,” according to the letter, a copy of which was obtained by The Associated Press.

However, the letter left open the possibility that the decision could be reversed.

“Please understand that our planning in this regard is not finalized, and we are prepared to give you until the end of the month to submit any information you would like us to see,” the letter said.

Both Chrysler and GM say they are cutting the number of dealers because they have too many outlets that are too close to each other, and the competition drives down prices.

But as the ranks of dealers thin and competition decreases, that likely will mean higher prices for car and truck buyers.

As GM and Chrysler lost market share to Japanese and other overseas brands, the automakers, as well as Ford Motor Co., ended up with too many dealerships.

Many are barely getting by and can’t afford to upgrade their facilities or hire the best personnel to compete with the Japanese, who have far fewer dealerships.

With fewer dealers, consumers won’t see as much competition, said Aaron Bragman, an automotive industry analyst with the consulting firm IHS Global Insight.

“No longer will people be able to shop between three or four dealers within 15 minutes of each other for the best cutthroat price,” he said.

GM knows it will lose sales in the short-term, but over the long haul, fewer dealers will mean higher per-vehicle profits, Bragman said.

“As the dealers go, so goes the company in terms of financial health,” he said.

In the 1980s, GM, Chrysler and Ford controlled more than 75 percent of U.S. sales, but that dropped to 48 percent last year. GMalone held nearly 51 percent of the market in 1962, but only 22 percent last year.

Bragman said GM likely will go into bankruptcy protection on June 1, but it’s starting to negotiate deals ahead of the filing to speed up the Chapter 11 process.

“GM has been … acting as if they are negotiating a prepackaged bankruptcy,” he said.

—Associated Press writer Ken Thomas in Washington contributed to this report.

(Copyright 2009 by The Associated Press. All Rights Reserved.)