REFILE-UPDATE 2-GM Canada set to give dealerships notice

Wed May 20, 2009 1:49pm EDT

(Refiles to fix date in 12th paragraph to May 31)

* GM Canada to cut about 42 percent of its dealerships

* Says focusing rationalization efforts on urban markets

* Industry Minister says GM needs CAW deal soon (Adds comments from industry minister, details)

By John McCrank

TORONTO, May 20 (Reuters) - General Motors of Canada (GM.N) said it will inform its dealerships on Wednesday of which ones it will close as part of a plan to slash its dealer network by nearly half, one of the steps necessary to qualify for long-term government aid.

GM, which is restructuring ahead of a June 1 deadline to qualify for a U.S. and Canadian government rescue package, said it has identified which dealers' sales and service agreements will not be renewed following their expiration in October 2010.

GM has about 700 dealerships and retailers across Canada.

"Due to the unique aspects of our Canadian dealer network, we have focused our network rationalization efforts on key urban markets in an effort to achieve a viable network configuration all across Canada," the company said in a statement.

"The end result in Canada will be a more competitive dealer network with higher volumes."

GM Canada first announced its plan to cut about 300 dealerships, or about 42 percent of its network, on April 27.

The Canadian Automobile Dealers Association said GM's dealers employ 33,000 to 34,000 people, so depending on which dealerships go and which stay, 12,000 to 15,000 jobs are at risk.

Typically, GM dealerships are divided into three main brand networks: Pontiac/Buick; Chevrolet/Cadillac; and Saturn/Saab. GM has announced that the Pontiac brand will be dropped.

A spokeswoman for Chrysler Canada, which has also had to rely on government support to survive the downturn in the auto sector, said the company has no plans to cut back on its roughly 450 dealers, which sell the Chrysler, Jeep, and Dodge brands.

GM NEEDS CAW DEAL TO MEET DEADLINE

Another cost-cutting measure GM must have in place by June 1 to qualify for long-term government aid is a new labor agreement with the Canadian Auto Workers union.

Ottawa had set a deadline of May 15 for the two sides to reach a deal to substantially reduce labor costs, but the deadline came and went and the bargaining continues.

Industry Minister Tony Clement said on Wednesday that the government would be patient with the talks as long as there is progress toward a deal, which must be ratified by May 31.

"As long as we're moving in the right direction, not the wrong direction, I'm willing to be patient on this," Clement told reporters in Washington.

"I don't want my remarks to be misinterpreted to mean that this can go on forever because it can't. The one deadline that in my view is immutable is the ... May 31 to June 1 deadline to have all of our ducks in a row."

Clement said that each day that goes by without a new labor agreement makes it that much more difficult for GM Canada to have all its affairs in order by the May 31 to June 1 deadline. (Additional reporting by Roberta Rampton in Washington; editing by Peter Galloway)

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