NEW YORK (AP) — General Motors is telling about 1,100 dealers their franchises will be terminated late next year.
GM's action today comes just a day after crosstown rival Chrysler
announced it will drop 789 of its roughly 3,200 dealerships. Both
companies have too many dealerships for too few sales and are slashing
costs as they restructure.
Dealers around the country nervously awaited news this morning, with
some saying they were in the dark about how they would be notified. In
Richmond, Va., Royal Chevrolet co-owner Del Mugford was slightly
relieved when he sifted through FedEx packages this morning and hadn't
received any bad news from General Motors. But he knew his future could
be determined by a phone call or a piece of mail.
"This is absolutely nerve wracking. It's like a death sentence. It's
the worst feeling in the world," said Mugford, 45, who bought the
dealership with his younger brother in 2002 after owning an Oldsmobile
franchise down the street. GM closed its Oldsmobile line of cars in
John Rogin, who owns a Buick dealership and GMC truck dealership in
the Detroit area, was also awaiting word. But he said he's not
worrying. His Buick store, he said, has been among the top 10
performers in the country for 15 years.
"I'm just selling cars. I'm still a loyalist, and for the most part
a purist as far as GM goes," he said. Many dealers, though, will fight
the cuts in court, he said.
"Most of the dealer body realizes that just because you get a letter
doesn't mean it's all over," he said. "This company isn't in
GM's dealer cuts are part of the company's plan announced last month
to cut more than 2,600 dealers by 2010. The remaining cuts will come
from closed Saturn and Hummer dealers, along with 400 dealers that the
company expects will close voluntarily. Another 500 would be
consolidated into other dealerships.
The GM dealer cuts are likely to have a much greater impact than
Chrysler's. While many Chrysler dealers also sell other brands and will
stay open after losing their franchises, a large number of GM dealers
sell only GM vehicles. So if their franchises are revoked, they run a
greater risk of closing for good.
In both cases, the cuts will cost thousands of jobs, create holes in
local tax bases, eliminate community pillars and create economic ripple
effects across the country.
Chrysler is operating under bankruptcy protection, so it is likely
to have an easier time tearing up its franchise agreements with its
dealers than GM. A hearing is scheduled for June 3 in U.S. Bankruptcy
Court in New York for the judge to determine whether to approve
Chrysler's motion to fire its dealers.
Chrysler executives said Thursday the company is trying to preserve
its best-performing dealers and eliminate ones with the weakest sales.
More than half of the dealerships being eliminated sell less than 100
vehicles per year, they said, and account for 14 percent of U.S.
sales.Chrysler has received $4 billion in government aid, while GM has
received $15.4 billion. GM is continuing to restructure out of court
and faces a government-imposed deadline of May 31 for doing so. Several
difficult hurdles remain, and many experts say that it is all but
inevitable that it will follow Chrysler into Chapter 11 bankruptcy.
To remake itself outside of court, GM must persuade its bondholders
to swap $27 billion in debt for 10 percent of its risky stock. In
addition, it must work out deals with its union, announce factory
closures, cut or sell brands and shutter dealers.
Swapping its bond debt for equity may be its most difficult task.
The company is trying to get 90 percent of its bondholders on board for
the so-called debt-for-equity swap. A committee representing the
bondholders has rejected the swap, saying it unfairly favors the
government and the United Auto Workers union. They have counteroffered
seeking a 58 percent ownership stake, which the automaker in turn
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