Survivor Detroit--GM votes 1,100 dealers off its island

Following on the heels of Chrysler’s announcement eliminating almost 800 dealerships yesterday, General Motors sent letters to about 1,100 of its dealerships last night, announcing that the dealerships’ franchise agreements would not be renewed after October 2010.

Amid the historic downturn in car sales, many dealers who may feel marooned on a desert island just got voted off. These dealerships, representing about 18 percent of GM’s total dealers, will have until October 2010 to sell their remaining cars. Many will remain open until then to provide sales and service for existing customers. What happens beyond October 2010 will vary, with some GM-only dealers closing for good, and others continuing on with franchises from other automakers, or remain just as an independent service shop specializing in GM vehicles.

In a conference call today, General Motors Vice President of Sales and Service, Mark LaNeve said about 50,000 customers of the affected dealerships would also get letters from GM, advising them of other nearby GM dealerships who can provide parts and service, as well as sell them new cars.

The dealer cuts are spread nationwide and affect mostly small dealerships with low sales and profits that were most vulnerable to the economic downturn. The 1,100 dealerships scheduled to be eliminated are in addition to about 500 Hummer, Saab, and Saturn dealerships that will no longer be in the GM portfolio after those brands are purged in the next few months. LaNeve reported serious, interested parties pursuing those brands, though no details were shared.

Under its restructuring agreement with the government, GM is trying to pare down its total number of dealerships from about 6,300 to about 4,000, and this latest move is part of that effort. LaNeve expects other dealers to close by attrition or voluntarily give up their dealer franchises. LaNeve emphasized that President Obama’s Automotive Task Force did not specifically mandate the move to close these dealerships.

In other news, yesterday General Motors filed a statement with the Securities and Exchange Commission indicating it expects bankruptcy is more likely. GM CEO Fritz Henderson told Bloomberg News a bankruptcy filing was “probable.” In the statement, the company said if fewer than 90 percent of its bondholders agree by June 1 to convert their bonds to equity in the company, GM will likely file for Chapter 11 bankruptcy.

Such a bankruptcy filing would be similar to Chrysler’s proceedings. Under Section 363 of the bankruptcy code, the best parts of the company would be sold to a new company, and the rest liquidated. GM and government officials hope the restructured company would emerge from bankruptcy relatively quickly, though it would take several years to deal with poorer-performing assets of the old company.

If you’re thinking about buying a GM car or truck, there are excellent deals available. As always, we recommend you find the best car that suits your needs, then pursue available deals, rather than let the deal drive the purchase.

See our current list of deals on Consumer Reports recommended vehicles.

With today’s announcement, GM has fewer dealers on its island, and those that remain will be stronger for it in the long run.

We will continue to monitor this fast-moving story, reporting here in the Cars blog and also updating advice and news on the Auto Crisis hub.

—Eric Evarts

Comments

[Derrick G]

I can see GM's not posting a list (Chrysler had little choice since it's part of a bankruptcy proceeding), but why send out letters? Those will just become public knowledge soon enough and scare off potential customers and sending reps from Toyota, Volkswagen, and Hyundai and Kia in wherever they don't currently have a store.