General Motors Corporation has said it will drop about 1600 US dealers as it struggles to slash billions of dollars in operating costs and debt ahead of an anticipated bankruptcy filing by the end of this month.
Taken together with a similar announcement by bankrupt Chrysler LLC, now in a merger with Italian carmaker Fiat, a day earlier, more than 2300 US car retailers have been put on notice that the two embattled companies are eliminating them.
Reuters Newsagency said the unprecedented closures under the direction of President Obama’s administration put an estimated 100,000 jobs at risk and showed the economic pain from the collapse of the two Detroit-based carmakers spreading across the United States.
“This is going to be a mess,” said Atlanta-based dealer consultant Jim Ziegler. “These dealerships are crucial to the local communities. Dealers are big advertisers. There will be a lot of ripple effects.”
GM said it planned to drop about 1100 of its smaller and less profitable dealerships by letting their franchise agreements expire when they come due in October 2010.
The company also expects to drop another 470 dealerships as it cuts its Saab, Hummer and Saturn brands.
After other dealerships fold or merge in coming months, the plan is for GM to end up with about 3600 showrooms by the end of next year for its Chevrolet, Cadillac, Buick and GMC brands.
That would represent a 40 per cent reduction in GM’s far-flung dealership network that has been protected until now by a patchwork of state franchise laws that made carmakers reluctant to move quickly to drop dealers.
GM spent more than US$1 billion to close its Oldsmobile division and shut down about 2800 dealerships earlier this decade, an experience that made it reluctant to take on its widely recognised problem of having too many dealers competing for a shrinking share of US vehicle sales.
GM is not offering dealers any compensation this time but offered to help them wind down their businesses.
Reuters says the risk of a drawn-out legal battle is another reason analysts believe it will follow Chrysler into a bankruptcy filing.
GM dealers targeted for closure were notified on Friday by letter, while those who were spared received no letter.
The National Automobile Dealers Association had lobbied the US Congress and the automotive task force under the US Treasury Department to stop or slow the closures.
“We view GM’s action with a profound sense of sadness and disappointment,” the business group said in a statement.