Dealer Cuts 'Hard to Enforce' Without Legal Filing -GM Executive
16 May 2009 - 4:30AM
Dow Jones News
General Motors Corp. (GM) told 1,100 U.S. dealers Friday they
will be phased out by October 2010, acknowledging the plan could be
difficult to execute outside of bankruptcy protection.
The move marks the first phase of efforts by the company to cut
its U.S. dealer network by 40% by the end of 2010, part of wider
restructuring efforts needed to win further U.S. government backing
by a June 1 deadline.
"Without a legal filling, these [dealer cuts] would be hard to
enforce," said GM sales chief Mark LaNeve on a conference call with
reporters. "They may want to take legal action. We're not looking
to get into a legal battle."
GM has said it hopes to avoid a Chapter 11 filing, though Chief
Executive Fritz Henderson said this week a move into court was
"probable".
The company's preparations have intensified since the U.S.
adminstration ousted Rick Wagoner as CEO in March after rejecting
GM's previous restructuring proposal.
Chrysler LLC, which filed for protection April 30, is using
court protection to cull a quarter of its U.S. dealer network under
plans announced Thursday.
LaNeve said it's not clear how far dealers will go to challenge
the closing plan. The auto maker will offer to help dealers "wind
down" and reduce inventory in hopes of encouraging them to go
voluntarily.
Rather than terminating contracts like Chrysler, GM will refuse
to renew dealer agreements, most of which expire in October
2010.
"The legal parameters around what you can do and can't do would
change" in bankruptcy, LaNeve said.
GM said it wouldn't release the names of the dealers affected
since they are independently-owned businesses.
The company said 18% of its U.S. dealer network received letters
informing them the auto maker plans to phase them out over the next
18 months.
They have a combined inventory of 65,000 cars and trucks and
employ tens of thousands of salespeople, mechanics and other
personnel.
GM expects additional reductions will come as dealers,
struggling with the worst sales environment in decades, naturally
go out of business.
GM believes having fewer, healthier dealers helps it better
compete with rivals such as Toyota Motor Corp. (TM), which have
newer, better financed dealerships in attractive locations. An
over-concentration of dealerships also can erode profits because
stores are forced to compete against each other by driving down
prices.
The company said it will soon update 470 Saturn, Saab and Hummer
dealers on the status of its efforts to offload those brands.
LaNeve said the Obama administration's auto task force, which is
overseeing GM's restructuring, thinks the dealer reductions are "a
good plan." He added that it hasn't seen the list of dealer
closings and did not mandate how many to cut.
GM's dealer actions in the U.S. contrasts with efforts by
distributors overseas. European dealers agreed Friday to invest in
a proposed buyout of GM's regional operation, with offers expected
on May 20.
GM's shares were recently down 4.3% at $1.10.
-By Sharon Terlep; 248-204-5532; sharon.terlep@dowjones.com.
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