General Motors has told US dealers by video conference it will next month name the 2,600 outlets targeted for closure within a year.
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Several dealers who watched the video conference told the Wall Street Journal (WSJ) the automaker had said it would take a hard line negotiating deals with franchise owners the company feels it would be better off without.
The company made big payouts to dealers when it eliminated its Oldsmobile brand in 2004. Media reports suggested the brand’s closure cost it about $US1bn including compensation payments to dealers.
One dealer who listened to Tuesday’s announcement told the WSJ GM made clear it was determined to avoid the same costs this time around, and intended to make a “take it or leave it” offer to dealers.
The dealers said GM North America vice president Troy Clarke and sales chief Mark LaNeve said the company wanted 1,000 to 1,200 under-performing dealers to go out of business while hundreds more were expected to be forced out of business as a result of the depressed market conditions.
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By GlobalDataGM on Monday said its US dealer count would be slashed 42% from 6,246 in 2008 to 3,605 by the end of next year, a further reduction of 500 dealers, and four years sooner, than in the plan it submitted on 17 February.
John McEleney, chairman of the National Automobile Dealers Association, said in a statement: “GM’s decision to radically cut its dealer network over the next 18 months comes as a surprise. We understand the realities of current market conditions. But nevertheless, we feel a strong sense of disappointment that GM has, for whatever reason, decided to accelerate dealer consolidation in such a drastic way. It is imperative that GM treat all of the dealers fairly and equitably and that they be properly compensated. After all, it’s not out of any fault of their own that these dealers are being forced to close their businesses.
“By closing 2,641 dealerships in 18 months instead of five years, GM could lose an estimated $35bn in sales revenue. Another 137,330 dealership employees will lose their jobs, and state and local governments will lose an estimated $1.7bn in sales tax revenue that would have been used for economic development in communities around the country.”
The WSJ said dealers were scrambling to understand their rights should they be among those the company wants to shed.
In most cases, the automaker’s contracts with dealers call for the company to buy out any inventory, tools and other items the dealers purchased for the business, the report said.
It noted that GM’s chief financial officer Ray Young had said on Monday that the automaker anticipated costs to buy out dealers would be minimal because the company has sharply reduced inventory which he said was the major expense involved in closing dealerships.
