GM dealers wait for the ax to fall

DETROIT (Reuters) - General Motors Corp dealers are just trying to figure out when and how they're going to end.

"I just don't know how they're going to kill us out," Geoff Pohanka, a third-generation dealer who owns Chevrolet, Cadillac and Saturn dealerships in Washington D.C.

"The government incorrectly thinks dealers are part of GM's cost structure, but they don't pay us any money to operate so it won't save them any money to eliminate dealers," Pohanka said. "It's just a false premise."

GM said on Monday it would reduce its 6,246 U.S. dealerships by 42 percent by the end of 2010, as part of a sweeping restructuring process the U.S. government has said the company must undergo to avoid a bankruptcy filing.

The prospect strikes a chill into the heart of the dealers who are struggling to survive frozen credit markets and a collapse in auto sales to three-decade lows.

GM's U.S. sales tumbled 49 percent in the first three months of the year, underperforming the overall market's 38 percent drop.

The company lost nearly 200 dealers in the first quarter amid uncertainty about its fate. Last year, auto manufacturers operating in the United States lost a combined 900 dealerships, according to the National Automobile Dealers Association.

GM Chief Executive Fritz Henderson said the company would notify the dealers affected by its downsizing in May and make offers to terminate franchise agreements.

But dealers said they were not expecting the kind of payout GM made when it closed its Oldsmobile division and shut some 2,800 dealerships. That process cost GM more than $1 billion.

"How can a company teetering on the edge of bankruptcy offer much? You would be lucky to get anything at all," said Raymond Ciccolo, who owns several GM dealerships in Boston.

"If they have to buy out every single dealer, it's just going to kill GM," Ciccolo said.

(Reporting by Soyoung Kim, editing by Leslie Gevirtz)