GM to drop 1,100 dealers

"A car company, under franchising laws, cannot simply cancel a dealer's franchise without cause,"…But if it goes into bankruptcy, those laws could be superseded, he said, and closings could take place earlier. Chrysler already has filed for bankruptcy and wants to shut down dealerships - including 12 of 60 in Massachusetts - next month.

The Boston Globe
May 19, 2009

GM to drop 1,100 dealers
At least 12 Mass. outlets notified Restructuring deadline is June 1
Erin Ailworth and Johnny Diaz

General Motors Corp. said it wants to eliminate about 40 percent of its nearly 6,000 dealerships nationwide by the end of next year, a day after Chrysler LLC unveiled plans to close almost 800 new-car outlets.

GM started the process yesterday by sending letters to 1,100 dealer locations scheduled to be phased out. The automaker did not release a list, but at least 12 of the 96 GM dealers in Massachusetts are among those slated to close, according to a lawyer who said he has been contacted by some of those affected.

The company said additional cuts will be made as it divests itself of the Hummer, Saturn, and Saab brands, as well as through voluntary closings and dealership mergers. GM said the dealerships expected to be shuttered do not sell enough new cars - just 35 annually, on average - or have poor customer-service rankings.

The company, which is running out of money and on the verge of bankruptcy, is under a June 1 deadline imposed by the federal government to restructure. The government and the United Auto Workers union would have major stakes in a reorganized and smaller GM.

Rick Smith, owner of Ricky Smith Buick Pontiac GMC in Weymouth, said he found out by letter yesterday that his business is one of those targeted by GM.

"They are not planning on renewing our franchise agreement as of October 2010," said Smith, whose father Richard "Ricky" Smith opened the dealership in 1959. "I am taken aback. We have always been one of their best dealerships."

Other GM dealers were reluctant to say whether they have received similar letters, possibly fearing a drop in sales if the news was made public.

"One sure way to keep people out of your showroom is to tell them you're getting closed," said Robert O'Koniewski, spokesman for the Massachusetts State Automobile Dealers Association, which was trying to track the closing notifications.

"Anything higher than zero is unsustainable in our eyes because dealers did not create this problem," O'Koniewski said. According to the trade group, Massachusetts' 96 GM dealers operate at an estimated 200 locations. Overall, the state has 460 new-vehicle dealerships for all brands. Together, they have 20,000 employees and account for about 20 percent of the retail economy in Massachusetts, according to the dealers group.

Even before the Chrysler and GM announcements, dealerships have been closing at a rapid rate as US auto sales have declined, especially as the recession has deepened. Since January 2007, the number of Massachusetts dealerships has declined by about 15 percent.

Nationwide, GM sold 173,007 vehicles in April, down 33.7 percent from the same period last year. For all of 2008, the automaker sold 2.98 million vehicles, off 23 percent from 2007.

Mark LaNeve, vice president of GM vehicle sales, service and marketing in North America, said the company wants to cut its network through a "gradual wind down" timed to coincide with the expiration of many of the affected dealer's franchise contracts. LaNeve said that would allow GM to help its departing dealers get rid of remaining inventory through sales, buybacks, and transfers to other locations.

Speaking from his Cadillac Escalade, LaNeve said the impending closings are part of a survival plan that "this leadership team has no choice but to take now."

"Dealers are not a problem at GM. They're an asset to GM," he said, but the industry can no longer support so many of them.

John Wolkonowicz, a senior auto analyst with the forecasting firm IHS Global Insight in Lexington, said the long time frame of GM's dealership downsizing is partially dictated by the fact that the company is still governed by franchising laws.

"A car company, under franchising laws, cannot simply cancel a dealer's franchise without cause," Wolkonowicz said. Most of the franchise agreements with the affected dealers expire in October 2010.

"GM is trying to be a good guy here and is telling these people what is coming down the pike," he said. But if it goes into bankruptcy, those laws could be superseded, he said, and closings could take place earlier. Chrysler already has filed for bankruptcy and wants to shut down dealerships - including 12 of 60 in Massachusetts - next month.

In any case, Wolkonowicz said, the closings will hurt many communities economically, at least until dealers figure out what to do next - whether that means finding another franchise, operating as used-car dealers, or getting into another business altogether.

"It's not just the dealers and the people they employed," he said. "It's the McDonald's down the street [that served employees and customers]. Everything is going to be affected by these people losing their jobs."

Scott Silverman, a partner at the Boston office of law firm McCarter & English, which has a large automotive practice, said dealers may decide to fight to keep their franchises.

"There are going to be many dealers that will not and should not just accept [that] this is a foregone conclusion," said Silverman, who represents about 50 GM dealers throughout New England. Silverman said his firm is already working with about a dozen Massachusetts dealers that received closing letters from GM.

"They will be standing up and making sure their rights are protected and General Motors complies with its obligations under the local franchise statute," he said.

Smith, of Ricky Smith Buick Pontiac GMC, said he will appeal the forced shutdown of his business, which he said he expanded last year at GM's urging to include Buicks. But in recent years, business has slowed, he said, and sales of new cars so far this year are down about 35 percent from the same period in 2008.

"We're pretty lean," Smith said, adding that he has reduced employee hours and left some vacant jobs open. Still, the Weymouth dealership has managed to remain a community supporter - it donates money to Weymouth Babe Ruth League and a cheerleading group, and sponsors two $1,000 scholarships to graduating Weymouth high school seniors.

If he loses his GM franchise, Smith said, he hopes to stay open selling used cars, which already account for about 75 percent of his revenue.

"We will be selling new cars for another year and a half, at least," he said. "I expect them to reverse their decision. I hope they do."

Globe Correspondent Julie Balise contributed to this report. Erin Ailworth can be reached at moc.ebolg|htrowliae#moc.ebolg|htrowliae, Johnny Diaz can be reached at moc.ebolg|zaidoj#moc.ebolg|zaidoj.

© Copyright 2009 Globe Newspaper Company.

http://www.boston.com/business/articles/2009/05/16/gm_to_drop_1100_dealers/?page=1


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