Following Chrysler, GM slashing U.S. dealers

By David Bailey and Kevin Krolicki

DETROIT (Reuters) - General Motors Corp said it would drop about 1,600 U.S. dealers as it struggles to slash billions of dollars in operating costs and debt ahead of an anticipated bankruptcy filing by the end of the month.

Taken together with a similar announcement by bankrupt Chrysler LLC a day earlier, over 2,300 U.S. auto retailers have been put on notice that they are being eliminated by the two embattled automakers.

The unprecedented closures under the direction of the Obama administration put an estimated 100,000 jobs at risk and showed the economic pain from the collapse of the two Detroit-based automakers spreading across the United States.

"This is going to be a mess," said Atlanta-based dealer consultant Jim Ziegler. "These dealerships are crucial to the local communities. Dealers are big advertisers. There will be a lot of ripple effects."

GM said it planned to drop about 1,100 of its smaller and less profitable dealerships by letting their franchise agreements expire when they come due in October 2010.

The automaker also expects to drop another 470 dealerships from cutting its Saab, Hummer and Saturn brands.

After other dealerships fold or merge in coming months, the plan is for GM to end up with about 3,600 showrooms by the end of next year for its Chevy, Cadillac, Buick and GMC brands.

That would represent a 40-percent reduction in GM's far-flung dealership network that has been protected until now by a patchwork of state franchise laws that made automakers reluctant to move quickly to drop dealers.

GM spent more than $1 billion to close its Oldsmobile division and shut down some 2,800 dealerships earlier this decade, an experience that made it reluctant to take on its widely recognized problem of having too many dealers competing for a shrinking share of U.S. auto sales.

TOUGH TERMS

GM is not offering dealers any compensation this time but offered to help them wind down their operations. The risk of a drawn-out legal battle is another reason analysts believe it will follow Chrysler into a bankruptcy filing.

"They may want to take legal action. We will have to see," GM sales chief Mark LaNeve said of the dealers.

GM dealers targeted for closure were notified on Friday morning by letters sent overnight via Federal Express. Other GM dealers learned they had been spared when no letter arrived.

The National Automobile Dealers Association had lobbied Congress and the autos task force under the U.S. Treasury Department to stop or slow the closures.

"We view GM's action with a profound sense of sadness and disappointment," the business group said in a statement.