General Motors has told 1,124 dealerships, most of them small and considered to be poor performers, that their GM franchise agreements likely won't be extended past October 2010.
But the letters, which are arriving today, say dealers can appeal the decision.
The notifications are part of GM's plan to trim its U.S. dealership count from 5,969 to 3,600 as part of its government-backed reorganization efforts.
Mark LaNeve, North American sales vice president, told Automotive News that the dealers who are receiving letters account for 7 percent of GM's total annual 2008 unit sales and currently hold 8 percent, or 65,000 units, of the company's unsold inventory.
"We don't anticipate that there'll be much reversing of these decisions," LaNeve said. "If they have issues that should be brought to our attention, there is a Web site that they can submit that to. We may have made a mistake, and we may have had bad data."
LaNeve said GM wants the dealers to wind down their operations, and "we will provide some support to do that," he said.
"It would be inventory-based support," he said. "We want them to sell down their inventory."
Cheaper route
The support would be much less expensive for GM and better than letting cars hit the auctions, he said.
"It's better for the dealer because he can have an orderly wind-down," he said. "It gives us more time to migrate our customers to other dealers. It's a win-win all around."
LaNeve acknowledged GM will "get some vehicles back," but didn't know how many.
He said dealers would get more specific information on how to wind-down their business after June 1.
In addition to the 1,124 dealerships GM notified today, another 470 stores will be cut loose when GM sheds the Hummer, Saab and Saturn brands. GM also has 35 stand-alone Pontiac dealerships that will disappear away when that brand is phased out by the end of 2010.
That will leave about 4,300 dealerships vying for the target goal of 3,600 GM rooftops, LaNeve said.
"Over 90 percent of those will get a chance to stay with GM, but we're going to communicate to them that they'll need to step-up," he said. "Be on channel, well capitalized, well trained etc.
"So those dealers who we have in our plan have a very good chance to earn a good return on their investment. We'll have a smaller, leaner and more efficient dealer body," he said.
Surviving dealerships
GM will communicate with the surviving dealers in the next few weeks, LaNeve said.
AutoNation Inc., the nation's largest dealership group, said six of its dealerships were included in GM's notifications today. Those six stores represent 0 percent of AutoNation's 2008 operating income, the company said. Any charges the company takes for those dealer closing will not be significant, AutoNation said in a statement.
"We believe GM's consolidation plan is a difficult but positive step that will strengthen America's dealer network and improve dealer profitability over the long term," AutoNation CEO Mike Jackson said.
"The consolidation plan is consistent with AutoNation's long-term strategy that we implemented in 2000 to consolidate domestic dealerships and realign our brand mix more towards import and premium luxury franchises."
Asbury Automotive Group, the sixth-largest U.S. dealership group, said GM will terminate the franchise agreements of two of its stores, both located in Kissimmee, Fla., west of Orlando. The stores affected are a Chevrolet dealership and a Pontiac/Buick/GMC store.
"Our hearts go out to the affected employees," Asbury CEO Charles Oglesby said in a statement.
Back-to-back
GM's announcement came a day after Chrysler LLC launched plans to terminate 789, or 25 percent, of its U.S. dealerships, effective June 10. Chrysler filed for Chapter 11 reorganization on April 30.
GM has until June 1 to convince President Barack Obama's auto task force that it can become viable, in order to qualify for more federal loans beyond the $15.4 billion it has already received and thus avoid a Chapter 11 filing. CEO Fritz Henderson has said a bankruptcy filing now is "probable."
It's not clear what the appeals process would be if GM does file for bankruptcy protection.
The e-mail address for dealer questions is GMDealerNetworkquestions@gm.com, the letter said.
"Please understand that our planning in this regard is not finalized, and we are prepared to give you until the end of the month to submit any information you would like to us," the letter said.
"We know this is a difficult situation. However, we feel that it is best to openly communicate our planning to you. The need for this review and analysis was forced on us by extremely difficult economic conditions both of us face in the industry."
The U.S. Treasury, in a statement, said the task force was not involved in deciding which dealers, or how many dealers, were part of GM's announcement. The task force also said it did not influence Chrysler's decisions.
"The Administration's commitment to this industry has given both companies a new lease on life," the statement said.
"By supporting a restructuring that results in stronger car companies -- supported by efficient and effective dealer networks -- this process will not only provide more stability and certainty for current employees but the prospect for future employment growth.
