Friday May 15, 08:15 PM
GM aims to shrink dealer network by 40 percent
By Rob Lever
WASHINGTON (AFP) - General Motors (NYSE: GM - news) announced plans Friday to shrink its dealer network 40 percent, cutting some 2,300 sales outlets by the end of 2010, under a stepped-up effort to prove viability and avert bankruptcy.
The troubled auto giant said in a statement that "this process starts today," with the notification of some 1,100 "underperforming and very small sales volume US dealers" that "will be advised that GM does not see them as part of its dealer network on a long-term basis."
Mark LaNeve, GM vice president, said many of the dealers notified this week were selling 35 or fewer vehicles per year. Most would face non-renewal of contracts in October 2010.
Additionally, GM said it would also likely sever ties with about 470 Saturn, Hummer and Saab (Stockholm: SAABB.ST - news) dealers as it sheds those brands.
The company, which is struggling to come up with a viability plan to avert bankruptcy, said additional cuts from attrition and other changes would reduce its dealer network from the current level of 5,969 to roughly 3,600 by the end of 2010.
"We have said from the beginning that our dealers are not a problem but an asset for General Motors," said LaNeve.
"However it is imperative that a healthy, viable GM have a healthy, viable dealer body that can not only survive but prosper during cyclical downturns. It is obvious that almost all parts of GM, including the dealer body, must get smaller and more efficient."
LaNeve told a conference call that although GM does not incur direct costs from the dealers, the sales outlets must be able to invest in the brand to keep GM viable.
If dealers only sell a small number of cars, "over time they can't afford to invest in their business to the degree their competition can."
The reduction of the dealer network is one step in the deep restructuring GM is trying to undertake to avert bankruptcy. It still must win additional concessions from bondholders and its main labor union to implement the plan, according to LaNeve.
Debt-ridden GM has taken more than 15 billion dollars in government loans and faces a June 1 government deadline to complete a major restructuring plan or be forced to follow its rival Chrysler into bankruptcy court.
The announcement came one day after Chrysler asked a bankruptcy court judge to shut down 789 dealers, nearly one-fourth of its sales outlets, saying this will cut costs and boost the odds for the success of its alliance with Italy's Fiat (Milan: F.MI - news) .
Chrysler, which is aiming for a quick court restructuring to start fresh under a partnership with Fiat, said the large dealer network compared with its rivals "substantially increases expenses and inefficiencies in the distribution system."
LaNeve said that unlike Chrysler, GM is seeking an "orderly wind-down" of the dealerships instead of a termination, which would in many cases require GM to buy back any unsold vehicles.
He acknowledged that some dealers may file legal challenges to the notices and that could lead to court battles in the absence of a bankruptcy court restructuring, which can void such contracts.
But he argued that "the plan is the same" for the dealer network whether or not GM seeks bankrutpcy.
LaNeve said the Treasury had no involvement in drafting the plan.
A US Treasury statement welcomed the effort as "part of the company's larger effort to restructure to achieve financial viability."
It said President Barack Obama's auto task force "is continuing to work with GM and all its stakeholders and will stand behind GM during this process to ensure that it emerges as a more competitive, viable business in the long-term."
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