May 16, 2009 in Business

GM to cut off 20 percent of dealership network

Automaker won’t renew 1,100 franchise contracts
Ken Bensinger Los Angeles Times
 

General Motors Corp. on Friday notified 1,100 of its dealers that it would not renew their franchise contracts, effectively eliminating nearly 20 percent of its distribution network.

The news, delivered in express mail letters and phone calls to Chevrolet, Buick, Pontiac, GMC and Cadillac dealers, comes a day after Chrysler used bankruptcy court to break the contracts with 789 of its nearly 3,200 dealers.

Separately, Chrysler said Friday that it was telling its parts suppliers whether they could continue to have working relationships with the company. The company sent letters to 1,200 suppliers it intended to keep but did not say how many would be cast aside.

The National Automobile Dealers Association said it estimated that 101,000 jobs could be lost between the GM and Chrysler dealership cuts. Thousands more could be lost from suppliers that go bankrupt from lost business to Chrysler.

GM said the moves were a painful but necessary step.

“It is imperative that a healthy, viable GM have a healthy, viable dealer body that cannot only survive but prosper during cyclical downturns,” said Mark LaNeve, GM’s head of sales, service and marketing. “It is obvious that almost all parts of GM, including the dealer body, must get smaller and more efficient.”

A letter sent to one dealer who asked not to be named said, “Based on our review and current and foreseeable market conditions and your dealership’s historical performance, we do not see that GM can have a productive business relationship (with the dealership).”

LaNeve said the cuts focused on dealers selling small numbers of vehicles or those with below-par sales, customer service or financial performance. Nearly 500 of the dealers singled out Friday sold 35 or fewer vehicles a year, he said.

This was probably the first of several rounds of cuts, and LaNeve said that about another 450 dealers – mainly those that also have franchises for non-GM brands – soon could receive similar notices in coming weeks. GM, which had about 6,000 dealers before Friday’s cuts, has a goal of reaching 3,600 dealers by the end of 2010.


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