• by Karl Greenberg , May 15, 2009

In announcing plans to jettison 1,110 dealerships, General Motors on Friday was at pains to differentiate its action from that taken by Chrysler one day earlier. Instead of referring to termination notices, GM said its affected dealers -- 18% of its dealer count -- were notified "of our current plans for the future of GM, saying their dealerships would not be part of those plans, and in essence, we didn't plan on renewing their agreement after the fourth-quarter 2010." 

Mark LaNeve, VP of North American vehicle sales, service and marketing, conducting a conference call from his Cadillac Escalade via OnStar, noted that GM was telling dealers a year in a half in advance, which is a circumstance more pragmatic than humane: Dealers are on five-year contracts, and the next one ends in fall 2010.

Jim Bunnell, executive director of sales support, said the affected dealerships average 35 units a year in sales. "Four to five hundred of those are not economically viable," he said.

LaNeve said that the announcement should not be news to the dealers. "We regularly discuss that they were well below average, and in most cases hurting and losing money, and in danger of going out of business anyway." He adds that those 1,100 dealers represented 7% of sales in 2008 and 8% of inventory on the ground. "They are way below state average, poor performers, and it shouldn't be a surprise to them."

He said GM will follow up in the first week of June with a second flurry of notes to the dealers saying it's time for them to start winding down their businesses, selling down inventory, and transitioning employees and parts.

"Our plan is not to immediately terminate dealers, but offer a gradual, orderly wind-down of business through 2009 and 2010," said LaNeve, who added that GM has an additional 500 dealers dedicated to Hummer, Saturn and Saab, brands that are on the block. "We will update [those dealers] in next couple of weeks of our quest to sell those brands and businesses."

After the transition, GM will have 4,400 dealers. GM is not providing a list of jettisoned dealers. LaNeve did acknowledge that many small-town dealers will feel the pain. "We have too little industry and sales, but what is critical is that we have a healthy, viable dealer network so dealers in critical places can compete. If our dealers don't have a big enough market to serve with adequate through-put over time, they can't invest in the business as the competition has."

Bunnell says no region is losing more dealerships per capita than any other, but that the dealers chosen to go are in proportion to GM's national sales distribution. "It's very close to our national footprint as a percentage of total."

LaNeve conceded that, over the next year, as dealers pull out and others take up the slack, GM will lose sales, but he maintained that the loss would be lower with a slower transition. "That's one reason we think a wind-down versus immediate termination makes sense. It's an orderly migration of our customer base."

Customers will be re-directed to other dealers, and GM will uphold warranties. "We have been very public that we stand behind warranty and products. The government has also added a backstop to warranties... It's difficult, there's a head wind out there for us. "