"This isn't easy for anybody," said LaNeve, who noted that many of the eliminated dealers were going out of business anyway.
General Motors Corporation began contacting about 18% of its dealers today to let them know that their franchise to sell new vehicles would not be renewed. Yesterday in an SEC filing General Motors said it plans to reduce its dealer network from 5,969 stores today to approximately 3,600 by the end of 2010. GM said the plan would not change if it files bankruptcy at the end of this month.
This culling process starts today, as GM sends letters to dealers regarding its long-term retail outlet plans. Approximately 1,100 under-performing and “very small sales volume U.S. dealers” will be advised that GM does not see them as part of its dealer network on a long-term basis. In most cases, their existing franchise agreements run through October of 2010. Most of these letters should have been received this morning.
GM refused to release the list of dealers contacted. As independently owned businesses, dealer owners will make their own decisions if and when they want to make this information public. This makes it difficult for car buyers to plan. Under current law, the dealers could remain with GM until the end of the sales and service agreement. A bankruptcy would allow GM to terminate agreements immediately as Chrysler LLC did yesterday.
The small volume dealers average 35 vehicle sales annually. Those dealers will be contacted during the first week in June to work with GM to wind down their business. Unlike Chrysler, GM is not immediately terminating dealers. GMAC’s financing contracts require that GM take back the vehicles in inventory. Terminated Chrysler dealers own their inventory. GM estimated that very few of its dealers are dualed with Chrysler.
Additional GM dealer cuts will be made.
GM said that the vast majority, more than 90%, of the remaining dealers will be offered a chance to remain with GM. However, specific dealer issues, further attrition and additional possible dealer network actions are expected to bring the number of future GM dealers to around 3,600 by the end of 2010, as described in the Viability Plan. The actual number could vary given levels of attrition outside of GM’s control.
Dealer advocacy groups contend that it costs GM no money to maintain dealers and it will hurt sales to close them. However ,GM said previous experiance shows that remaining dealers pick up the business in as little as one month, though sometimes it takes 18 months, depending on the market. GM’s immediate problem is the lack of buyers for its vehicles with sales down almost 50% this year.
“We have said from the beginning that our dealers are not a problem but an asset for General Motors,” said Mark LaNeve, GM Vice President of Sales Service and Marketing. “However it is imperative that a healthy, viable GM have a healthy, viable dealer body that cannot only survive but prosper during cyclical downturns. It is obvious that almost all parts of GM, including the dealer body, must get smaller and more efficient.”
GM’s viability plan calls for fewer, stronger brands as well as fewer dealers. ” Saturn, Saab and Hummer will be shut or sold shortly. And Pontiac will be closed, relegating it to a footnote in automotive histories of the 21st century.
We have taken a very difficult step by identifying those dealerships we’d like to keep in the GM dealer network and those with whom we will have to wind down our business relationships,” LaNeve said. “Long term, GM should have fewer, healthier dealers, maintaining GM’s current high customer satisfaction ratings, with more sales per outlet.”
In addition, next week GM will update the roughly 470 Saturn, Hummer and Saab dealers on the status of those brands and we will be discussing how the remaining dealers will support its retail plans going forward. GM’s dealer count numbers are deliberately estimated since teh company is losing an unprecedented number of them as the Great Recession continues. However, LaNeve said there was no news on those struggling brands as of today.
Treasury Department Statement on GM Dealer Consolidation Announcement
WASHINGTON – Today, General Motors initiated the dealer consolidation plan it laid out in its interim plan on April 27, 2009.
GM’s announcement is part of the company’s larger effort to restructure to achieve financial viability. The Task Force is continuing to work with GM and all its stakeholders and will stand behind GM during this process to ensure that it emerges as a more competitive, viable business in the long-term. As was the case with Chrysler’s dealer consolidation plan, the Task Force was not involved in deciding which dealers, or how many dealers, were part of GM’s announcement today.
As difficult as these announcements are for the dealers that will no longer be selling GM and Chrysler cars and the communities in which they operate, without the President’s intervention, the entire GM and Chrysler dealer networks could have been lost. The Administration’s commitment to this industry has given both companies a new lease on life. By supporting a restructuring that results in stronger car companies – supported by efficient and effective dealer networks – this process will not only provide more stability and certainty for current employees but the prospect for future employment growth.
In addition, the Administration is committed to continuing its significant efforts to help ensure that financing is available to creditworthy dealers and to pursuing efforts to help boost domestic demand for cars. These steps will help auto dealers, the auto industry, and the American economy.
GM Canada Statement Regarding Canadian Dealer Network Consolidation Activities:
Oshawa, ON, May 20, 2009 — GM Canada, at the request of the Federal and Ontario Governments, accelerated its restructuring and released a revised, more aggressive Operating Plan on April 27th, which included plans to reduce the number of GM dealerships in Canada by approximately 42%. Today, GM Canada will advise Canadian dealers of the specifics of our network consolidation plan, including the identification of dealers whose Sales and Service agreement would not be renewed following expiry in October 2010. The goal is to accomplish this reduction in an orderly, cost-effective and customer-friendly way.
Due to the unique aspects of our Canadian dealer network, we have focused our network rationalization efforts on key urban markets in an effort to achieve a viable network configuration all across Canada. The end result in Canada will be a more competitive dealer network with higher volumes, while continuing to maintain the strongest and broadest dealer network in the country better equipped to serve GM customers.
General Motors of Canada (GMCL) is headquartered in Oshawa Ontario and employs 12,000 people nationwide. GM of Canada manufactures vehicles, vehicle powertrains, and markets the full range of General Motors vehicles and related services through approximately 700 dealerships and retailers across Canada.