January 12, 2009 - General Motors, Detroit MI

GM May Lose as Many as 500 Dealers in U.S. This Year

GM said it may lose as many as 500 dealers in its home market this year, an increase from 350 last year, as the largest U.S. automaker works toward a goal of cutting 1,700 by 2012.

GM May Lose as Many as 500 Dealers in U.S. This Year

General Motors said it may lose as many as 500 dealers in its home market this year, an increase from 350 last year, as the largest U.S. automaker works toward a goal of cutting 1,700 by 2012.

The reduction will widen in part because of the strain of a fourth straight year of U.S. auto-sales declines and a company initiative to trim brands and emphasize only Chevrolet, Cadillac, GMC and Buick, GM North American President Mark LaNeve said in an interview today. GM may also have to spend more to convince some of its 6,400 dealers to consolidate, he said.

Culling dealerships and brands is part of GM’s plan that also includes trimming labor and debt costs to convince the U.S. Treasury Department that the Detroit-based automaker can survive and repay $13.4 billion in promised federal loans. GM has said it will fail without government loans.

“We had 13,000 dealers 18 years ago, so we’ve already cut that in half,” LaNeve said at the North American International Auto Show in Detroit. “We don’t want them to close all at once because we figure we lose sales for 18 months after a dealership closes until other dealers pick up the business.”

The expected reduction of 400 to 500 dealers will include owners retiring without being replaced, outlets failing in the slowing economy and GM helping consolidate stores in markets with too many locations for the same brand, LaNeve said. He didn’t say how much GM is spending on closing dealerships.

Paring Brands

The automaker is considering the sale of its Hummer and Saab brands, weighing options for Saturn and shrinking Pontiac to as little as one model as part of the plan to meet terms of the government loans. GM has about 400 dealerships for Saturn and 100 each for Saab and Hummer, LaNeve said.

GM may keep Saturn as it undergoes a needed pruning of its brands, Chief Executive Officer Rick Wagoner said today in an interview of Bloomberg Television. The automaker has been meeting with Saturn dealers and hopes to “come to a conclusion in the near term,” he said.

GM is trying to manage the process of trimming dealership to avoid the $1 billion cost incurred when it dropped the Oldsmobile brand in 2000, he said. GM provides 10 percent to 20 percent of the costs of combining outlets, with the rest from private funding, LaNeve said. The company’s share will probably rise if GM chooses to eliminate a brand, he said.

The company has already consolidated most of its Buick, Pontiac and GMC dealers into combined stores, said Susan Docherty, the North American vice president of the three brands. The combined outlets account for about 80 percent of the brands’ sales, and that will rise to 85 percent by the end of this year, she said.

“We’re past the tipping point,” she said. “Tough economic times can be very cleansing.”

GM has cut Buick from eight models in 2005 to three this year, and in the future will shrink Pontiac from its current six models, she said.

Original Story - Bloomberg

Update January 23, 2009

GM, dealers to discuss closing shops

Automaker plans to trim 30% of its franchisees by 2012

General Motors Corp.'s dealers, who've privately been making decisions about whether to try to stay open in the suffering economy or just close shop, will get their chance to meet with the automaker this weekend about its plans to slash dealerships by nearly 30% over the next three years. Advertisement

GM plans to hold closed-door meetings with its franchisees during the annual National Automobile Dealers Association convention -- the first since the automaker received approval of $13.4 billion in federal loans that call for the company to make changes to several areas of the business, including its dealer network.

"There's a concern," said John McEleney, a GM dealer from Clinton, Iowa, who is the incoming NADA chairman. "No matter what, there's going to be change."

GM has told Congress it plans to eliminate 1,750 dealers by 2012 -- including as many as 500 this year -- and has indicated it would also reduce its U.S. focus from eight brands to four. That leaves uncertainty hanging over Hummer, Saab and Saturn dealers. (Pontiac is to become a niche brand.) While GM is still formulating its final plans to meet a Feb. 17 deadline, industry analysts told the Free Press they believe GM's dealer-reduction goals can be met, largely because of the sour economy that has hit dealers hard. Tight credit markets and a lack of consumer confidence helped GM sales drop 22.7% last year.

"I think they're going to find that a lot of dealers are going to go out of business on their own accord," Sheldon Sandler of Bel Air Partners, a Princeton, N.J., company that advises dealer companies, said of GM.

Paul Melville, a dealership-consolidation expert with Grant Thornton LLC, a global accounting and business advisory firm, agreed it might not cost GM a lot to shed dealers.

"The market will deal with a lot of it," Melville said. "The liquidity problems will force a lot of dealers to hand back the keys to GM. There are a number of dealers who are going to decide they don't want the franchise anymore ... because they can't make any money out of it."

Reducing Detroit's dealer network has bedeviled the industry for years as automakers face state laws and individual franchise contracts that make the process costly and slow. It's also an emotional process for many dealers who have had the business within the family for generations and who see their personal identity wrapped up in it.

Duane Paddock, cochairman of GM's national dealer council, has been fielding phone calls from fellow GM dealers on the edge of deciding whether to stick with it or get out of the automotive business. He saw "an aura of sadness."

"I have had conversations with some that are more optimistic than others," he said. "I have had conversations with some dealers who say, 'It's my time. ... It's time for me to move on.' " Looking to consolidate

Getting rid of Oldsmobile cost GM more than $1 billion and years of legal headaches and hassles. But in this crummy market, the automaker does not believe it will cost that kind of cash for new consolidation.

GM executives plan to reach their restructuring goal through consolidating brands, normal attrition and retirements, and helping voluntary closures and consolidation.

"We don't anticipate that the consolidation going on in the future is going to cost what Oldsmobile did," Mark LaNeve, vice president of GM North America vehicle sales, service and marketing, told the Free Press in an interview at the Detroit auto show this month.

"We're not announcing the closure of brands, at least at this point," he said. "We're just consolidating existing points. It's mainly dealers that I think are struggling or looking to sell their business anyway."

Susan Garontakos, a GM spokeswoman, said GM finished 2008 with 6,375 U.S. dealerships -- that's 75 fewer than the number GM said it had just weeks earlier when it gave its viability plan to Congress on Dec. 2.

Last year, GM shed around 350 dealers, according to GM.

Sandler, the industry consultant, estimates the average GM dealer sells about 40 vehicles per month. Based on that, Sandler figures the average GM dealer is only taking in $40,000 a month.

"They have to pay all of their employees, their rent, the utilities, the maintenance, everything. It's impossible," he said.

By shedding dealers, GM said its plan would increase annual throughput (vehicles sold per dealer) for the remaining dealers to "a more competitive level with other high-volume manufacturers."

GM, which sees its rural dealers as a competitive advantage, plans to focus reductions in cities and suburban areas.

Melville knows GM dealers are nervous. "The general mood of the dealer body is one of concern, elevated to panic in certain areas," he said. "I don't think there is anyone sitting there thinking life is great."

Update Story - Detroit Free Press