A Leaner GM: 1,100 Dealers Cut

Tom Sparks, owner of a Buick dealership in DeKalb, Ill., holds the letter he received from GM saying it will not renew his franchise contract.
Tom Sparks, owner of a Buick dealership in DeKalb, Ill., holds the letter he received from GM saying it will not renew his franchise contract. (By Jeff Haynes -- Getty Images)
By Kendra Marr, Susan Kinzie and Jennifer Buske
Washington Post Staff Writer
Saturday, May 16, 2009

General Motors notified 1,100 of its dealers yesterday that it would not renew their franchise contracts when they expire next year, slashing 18 percent of its sprawling retail network.

It was the automaker's first step in winding down dealerships, as part of a major restructuring underway at the American industrial icon. GM plans to continue to shrink its number of dealers from 6,000 to 3,600 to 4,000 by the end of 2010.

The news arrived in letters sent by next-day mail. They arrived just a day after Chrysler, which is in bankruptcy, announced plans to ax 789 of its 3,181 dealers.

"You have been identified as an underperforming dealer," GM said in its letter to the targeted dealers.

Chrysler's list of rejected dealers was made public by the bankruptcy court, setting off waves of staff meetings full of teary employees. But, since GM's announcement was private, and the cancellations still months off, many owners kept the bad news to themselves.

"The dealers are being very quiet right now because they are very emotional," said Donald L. Hall, president and chief executive of the Virginia Automobile Dealers Association.

For those with empty mailboxes yesterday, it was a relief to be safe -- for now.

"Everyone was fearful coming into work this morning," said Mel Parekh, who has owned Woodbridge Route 1 Pontiac Buick GMC for nine years.

Jim Stutzman, a GM dealer in Winchester, Va., has been anxious for weeks that the outlet he and his father started 29 years ago might be affected.

"No letter yet!" he wrote in a text message yesterday afternoon. "I am starting to feel a little more confident," adding a smiley-face symbol.

Instead of immediately terminating contracts, as Chrysler did, rejected GM dealerships are expected to wind down their businesses by October 2010. Some dealers could receive financial incentives or help in selling their inventory. In early June, GM will follow up with another letter advising dealers how to shift their 65,000 vehicles and extra parts and transition employees.

Mark LaNeve, GM's vice president of sales service and marketing, admitted that it could be difficult to execute the plan to shrink the number of dealerships outside of bankruptcy, because filing for federal Chapter 11 protection typically gives companies leverage over state franchise laws that protect dealers.


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