With just two weeks to go for the 1 June deadline imposed by the US government to restructure or file for bankruptcy, General Motors dealt a telling blow to 1,100 of its nearly 6,000 dealers yesterday by saying that it did not intend to renew their franchise agreements late next year.
In a desperate move to avoid bankruptcy, the Detroit-based carmaker plans to reduce its dealer network 40 per cent from nearly 6,000 to 3,600 and close down some 2,300 sales outlets by the end of 2010.
This move came just a day after its smaller sibling in distress, Chrysler, asked a bankruptcy court judge to close its 789 US dealers by 9 June in order to make its deal with Fiat more lucrative.
GM told the 1,100 dealers across the country that based on their sales, customer service scores, location and other factors, the company would not renew the dealership.
In pruning down the number of dealers, GM will be able to reduce costs incurred in transportation of cars and parts to various locations as well reduce inventory.
The National Automobile Dealers Association said that by closing down 1,100 of GM dealerships, 63,000 jobs would be lost by June.
GM, which is surviving on $15.4-billion US government handout, has submitted restructuring plan - which the White House has yet to approve - calls for trimming 47,000 jobs worldwide, closing more than a dozen plants in the US, eliminating four brands sever ties with about 470 Saturn, Hummer and Saab dealers.
This month, GM posted a loss of $6 billion, amounting to $9.78 a share, as against a loss of $3.3 billion, or $5.80 a share, a year ago, when its stock hovered above the $20 level. (See: GM reports $6 billion loss, burns through $10.2 billion)
GM said it held $11.6 billion in cash at the end of the quarter which was down from 14.2 billion at the end of 2008. The company burned through $10.2 billion in cash by the end of the quarter.
Last month, GM said it would cut 21,000 factory jobs in the US by next year, phase out its famous Pontiac brand, and ask the government to take more than half its stock in exchange for half of GM's government debt as part of a major restructuring that would leave current shareholders holding just 1 per cent of the company.
President Barak Obama and his economic team are hoping that the hard line they took on Chrysler LLC last week, forcing it into quick bankruptcy protection, will give them leverage to force huge changes in General Motors, a far larger and more complex company. (See: GM a much harder nut than Chrysler)
The US Treasury Department, although feeling sorry for the dealers, said in a statement "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."