General Motors said on May 15 it will seek to eliminate 2,300 sales outlets, nearly 40% of its U.S. dealers by the end of 2010 as part of its reorganization.
GM said that "this process starts today," with the notification of some 1,100 "underperforming and very small sales volume U.S. dealers" that "will be advised that GM does not see them as part of its dealer network on a long-term basis."
Mark LaNeve, GM vice president, said many of the dealers notified this week were selling 35 or fewer vehicles per year.
Additionally, GM said it would also likely sever ties with about 470 Saturn, Hummer and Saab dealers as it sheds those brands.
The company, which is struggling to come up with a viability plan to avert bankruptcy, said additional cuts from attrition and other changes would reduce its dealer network from the current level of 5,969 to roughly 3,600 by the end of 2010.
"We have said from the beginning that our dealers are not a problem but an asset for General Motors," said LaNeve. "However it is imperative that a healthy, viable GM have a healthy, viable dealer body that can not only survive but prosper during cyclical downturns. It is obvious that almost all parts of GM, including the dealer body, must get smaller and more efficient."
LaNeve told a conference call that although GM does not incur direct costs from the dealers, the sales outlets must be able to invest in the brand to keep GM viable. If dealers only sell a small number of cars, "over time they can't afford to invest in their business to the degree their competition can."
The reduction of the dealer network is one step in the deep restructuring GM is trying to undertake to avert bankruptcy. It still must win additional concessions from bondholders and its main labor union to implement the plan, according to LaNeve.
The announcement came one day after Chrysler asked a bankruptcy court judge to shut down 789 dealers, nearly one-fourth of its sales outlets, saying this will cut costs and boost the odds for the success of its alliance with Italy's Fiat.
LaNeve said that unlike Chrysler, GM is seeking an "orderly wind-down" of the dealerships instead of a termination, which would in many cases require GM to buy back any unsold vehicles. He acknowledged that some dealers may file legal challenges to the notices and that could lead to court battles in the absence of a bankruptcy court restructuring, which can void such contracts. But he argued that "the plan is the same" for the dealer network whether or not GM seeks bankrutpcy.
Copyright Agence France-Presse, 2009