Friday, May 15, 2009

GM Starts Notifying 1,100 Dealers of Closings as Automaker Shrinks Network

General Motors Corp., facing a probable bankruptcy filing by June 1, is telling 1,100 “underperforming” U.S. dealers they will be terminated as the automaker starts shrinking its retail network.

Most of the closings will occur by October 2010, and none are happening now, Detroit-based GM said today. The targeted outlets will have until the end of the month to appeal the decisions, GM said, without specifying the stores on the list.

The shutdowns are the biggest U.S. automaker’s first step to pare domestic dealers to a range of 3,600 to 4,000 from 5,969 by the end of 2010. With fewer retailers, the survivors may each be able to sell more cars at higher prices, boosting profit.

“It’s a cruel day, but it’s one of the casualties of the situation,” said Mike Robinet, a CSM Worldwide Inc. analyst in Northville, Michigan. “Dealer consolidation is a fairly substantial reason that Chrysler had to go into bankruptcy and a very good reason why GM will need to go in as well.”

GM told dealers in a letter the locations targeted for closing were measured by benchmarks including sales volume, customer feedback, capitalization, profitability and pairings with competing brands.

The notices went to “1,100 underperforming and very small sales-volume U.S. dealers,” GM said in a statement.

‘No Surprise’

“It’s not something we do without a lot of consideration,” Mark LaNeve, GM’s North American sales chief, said on a conference call. “The dealers receiving these letters, unless they haven’t been paying attention at all, it should be no surprise at all to them.”

Those dealers included R.L. Reising Sales Inc. in the Chicago suburb of Beecher, Illinois, which has sold GM vehicles since 1929 and learned today by letter that its Chevrolet franchise agreement won’t be renewed.

“It’s like someone rips your guts out,” said Joseph Reising, 49, the dealership’s vice president. The business was founded by his grandfather and employs 15 full-time workers. “It leaves a big hole.”

Today’s moves are in addition to the approximately 470 dealers being shed as GM disposes of its Hummer, Saturn and Saab brands and drops Pontiac. GM has said it expects some dealers to leave voluntarily. GM plans to focus on its remaining Chevrolet, Cadillac, Buick and GMC brand dealerships in the future.

GM fell 6 cents, or 5.2 percent, to $1.09 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have tumbled 95 percent in the past year.

Chrysler’s Cuts

GM’s news delivered a second blow to U.S. auto dealers in as many days, after Chrysler LLC said yesterday it would shut 789 U.S. outlets as it reorganizes in bankruptcy court.

President Barack Obama’s autos task force said that GM’s cutbacks, like those announced by Chrysler, were made by auto executives and not the government.

“The entire GM and Chrysler dealer networks could have been lost” without the administration’s backing for the companies, the panel said in a statement released by the Treasury Department in Washington. GM has received $15.4 billion in emergency loans, while Chrysler received $4 billion before its April 30 bankruptcy filing.

In contrast to Chrysler, which waited until it filed bankruptcy to cancel dealerships, GM is taking steps to reduce its retail network now, saying it still hopes to avoid having to restructure in court.

‘Probable’ Bankruptcy

Still, Chief Executive Officer Fritz Henderson said yesterday that bankruptcy is “probable” as GM works to shave operating costs and shrink debt and union-retiree obligations by $44 billion.

LaNeve said GM’s dealer consolidation won’t affect whether the automaker files for court protection, adding that the company needs to reduce its retail outlets in or out of bankruptcy.

GM’s 8.375 percent bonds due in July 2033 rose 0.4 cent to 4.9 cents on the dollar, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. The yield was 162 percent. The notes traded at 74.4 cents on the dollar a year ago.

With GM refraining from releasing a closings list, the names of the affected dealers surfaced more slowly than those on Chrysler’s roster, which were disclosed yesterday in a U.S. Bankruptcy Court filing.

‘No Big Deal’

Kenneth Keeton, owner of Keeton Motor Co. in Fordyce, Arkansas, said he received a letter from GM yesterday informing him GM would let his Buick-Pontiac-GM franchise agreement lapse in 2010.

“It ain’t no big deal to me,” said Keeton, whose 42-year- old store is among four dealerships, including another GM outlet, in a town of about 5,000 people. “The last 10 years, it’s cost me more to do business with them than it’s worth.”

Keeton, who said his dealership employs about 10 people, said he plans to stay in business selling used cars and offering service and towing.

AutoNation Inc., the largest U.S. auto retailer, said it was told by GM that six of its dealerships had been identified for potential closing. Any costs associated with the shutdowns won’t be material, said the Fort Lauderdale, Florida-based company, which operates 289 dealer franchises.

Asbury Automotive Group Inc. said two of its stores in Kissimmee, Florida, were among the GM outlets on the closings list. Together with a Chrysler dealership being shut down, the Asbury outlets generated about $105 million in 2008, or about 2 percent of the Duluth, Georgia-based company’s total.

Coggin Chevrolet and Coggin Pontiac/Buick/GMC had no comment, according to people who answered phone calls at the dealerships and wouldn’t give their names. Asbury said on its Web site that it has 86 stores.

A Sonic Automotive Inc. spokesman, Raymond Valentine, said four of the retailer’s GM stores were on the list. The Charlotte, North Carolina-based company has 159 franchises, according to its Web site.