Friday, May 1, 2009

GM to Eliminate More Than 1,000 Underperforming Dealers

GM Plans to Eliminate as Many as 1,200 Auto Outlets

By Katie Merx

General Motors Corp., facing a June 1 restructuring deadline to avoid bankruptcy, will begin notifying outlets the automaker plans to eliminate by May 11, the company told dealers today in a video conference call.

The Detroit-based automaker told dealers it is targeting 1,000 to 1,200 underperforming outlets and will cut more than 450 stores with the ending of the Pontiac, Saturn, Hummer and Saab brands, Susan Garontakos, a GM spokeswoman, said in an interview. GM plans to reach its goal of reducing its network by 2,600 sites through attrition and consolidation, she said.

GM said yesterday it intends to cut dealerships by 42 percent to 3,605 from 6,248 at the end of last year to help reduce liabilities by $44 billion and keep $15.4 billion in U.S. loans. Dealers Russ Shelton of Rochester Hills, Michigan, and Lynn Thompson of Springfield, Missouri, said GM is determined.

“It was a hard meeting to listen to,” Thompson said, who was on the call. “They’re not messing around at all. They’re getting this done.”

The plan to eliminate retail franchises will end as many as 137,330 dealership jobs, John McEleney, the chairman of the National Automobile Dealers Association said in statement today.

GM’s closings during 18 months may cost the automaker $35 billion in revenue and will reduce state and local government sales taxes by about $1.7 billion a year, McEleney said.

‘Drastic’ Closings

“We feel a strong sense of disappointment that GM has, for whatever reason, decided to accelerate dealer consolidation in such a drastic way,” McEleney said in the statement. “It is imperative that GM treat all of the dealers fairly and equitably and that they be properly compensated. After all, it’s not out of any fault of their own that these dealers are being forced to close their businesses.”

GM Chief Executive Officer Fritz Henderson said in a news conference yesterday the decision to shrink the dealer network is essential to the company’s restructuring and that the automaker will “provide the dealers who are being affected with notification as well as what they’re being offered,” in a timely manner.

Brands for Sale

GM is trying to sell the Saturn, Hummer and Saab brands. GM told the U.S. government in February that the company had $1.1 billion in annual operating losses from the brands. On March 5, GM said it retained Stephen Girsky to advise the Saturn division and dealers on the process of selling or spinning off Saturn. GM said it would close Saturn by 2011 if neither option succeeds.

While GM is planning to end its relationship with its about 380 Saturn dealers, Jill Lajdziak, general manager of the Saturn brand said in an interview today that several parties have an interest in acquiring the brand and its dealer network.

Lajdziak said GM will accept formal offers for the brand through June 1.

“Then we’ll transition with a narrower list through the summer months,” she said.

A group including private-equity firm Black Oak Partners LLC and dealers has identified itself as a bidder. GM declined to name the other bidders or say how many parties are interested.

GM has the Treasury Department’s permission to spin off Saturn, even in bankruptcy, and two automakers are among the parties who remain interested in the brand, Don Hudler, a Saturn franchisee in Houston, Texas, said GM told dealers during a conference call on Monday.

The automaker will produce Saturn vehicles through the end of 2009, and the automaker would be willing to make vehicles for a new owner on a contract basis through 2011, Lajdziak said.

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