General Motors Pulls Back on Dealership Cuts
June 8, 2010 - 4:42 PMGeneral Motors will keep open about 900 dealerships across the country that it had planned to close, a shift in corporate strategy that could preserve thousands of jobs.
The automaker will wind up with about 5,000 U.S. dealers in July, up from original plans for 4,100, Mark Reuss, GM's North America president, told The Associated Press. It had about 6,000 when it filed for bankruptcy last year.
The change represents a desire by GM's new leadership team to avoid the expense of closing dealerships, a step they say is not critical to bring the company back to profits.
GM's large dealer network "used to be one of our main, massive strengths," Reuss told the AP during a recent test drive of the new Chevrolet Cruze. "I still think that's true. It can be true with the right dealers."
July is the end of a federally mandated arbitration process under which dealerships that GM and Chrysler Group had targeted could appeal. Partly because of GM's strategy change, only about a quarter of the 1,576 cases brought by GM and Chrysler dealers remain before arbitrators.
"Everyone's pretty excited," said Bob Kapp, new car manager at Allen Chevrolet Cadillac in Monroe, Mich., which learned in April that it would be reinstated as a GM dealer and plans to hire 10 to 12 people as business picks up. "It was tough there for a while."
GM on Tuesday would not estimate how many total jobs might be saved. The National Automobile Dealers Association, a trade group, says about 50 people work at an average new-car dealership.
Both GM and Chrysler announced plans to shed 2,800 dealerships as part of their reorganizations. The companies said their U.S. sales didn't justify so many dealers - nearly 10,000 between them. By comparison, Toyota has only about 1,200 even though it's the second-largest automaker by U.S. sales.
GM and Chrysler also argued that closing some dealers would make the remaining ones more profitable and allow them to invest in nicer facilities, advertising and training.
GM's last CEO, Fritz Henderson, convinced an Obama administration task force that GM needed to close struggling dealers. But he was ousted in November, just before Congress passed a law requiring arbitration before either automaker could cut a dealership loose.
Since the arbitration hearings began in February, most cases have been settled - either because GM and Chrysler reinstated dealers or the dealers withdrew their cases, some of them to sign with other automakers, others to close for good. About 300 GM dealers and fewer than 100 Chrysler dealers targeted for closure are still awaiting a decision from arbitrators.
Reuss wouldn't elaborate on the change in GM's strategy.
"I'm concentrating on what it needs to be for the new GM," he said. "I think we've removed a lot of the anxiety and all the things that go with that."
Chrysler, too, will have more dealers than it planned when it emerged from bankruptcy, although it won't say exactly how many. It closed about 800 last summer but has since agreed to reinstate about 10 percent of those.
Chrysler has been more aggressive than GM in closing dealerships. It sued North Carolina and four other states to stop state laws that would have protected dealers.
Because it closed its dealers immediately last year - instead of giving them a year's warning, as GM did - Chrysler also faces some sticky legal cases. For example, an arbitrator recently ruled that Chrysler should reinstate a Dodge dealer in Deland, Fla., that was terminated last June. But Chrysler had already awarded Deland Dodge's franchise agreement to another dealer across the street. Deland Dodge general manager Jeremy Kiel said it's unclear what will happen next. In the meantime, he has had to lay off 10 employees.
Still, arbitrators are siding with Chrysler more often than not. As of Tuesday, arbitrators have decided 22 cases in Chrysler's favor and six in favor of dealers.
"Business is business. There isn't anything personal with it," said Catherine Zimmer, owner of a Chrysler dealership in Florence, Ky., who just won her franchise back after arbitrators overruled Chrysler's decision to cut her. She hopes to start selling new cars again by July 1.
Her retirement followed condemnation of her remarks that Israel should "get the hell out of Palestine." She has since said she regretted her comments.
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