G.M. Plans to Reinstate 661 Dealerships
By NICK BUNKLEY
Copyright by The New York Times
Published: March 5, 2010
DETROIT — General Motors, seeking to avoid a protracted legal battle as it focuses on increasing sales, said on Friday that it planned to reinstate 661 dealerships cut last year as part of its bankruptcy reorganization.
Enlarge This Image
Scott Olson/Getty Images
Larry Noga working last May at the Balzekas Chrysler dealership in Chicago. The dealership was slated to lose its franchise.
That is more than half of the roughly 1,100 dealers who filed to challenge G.M.’s terminations through an arbitration process established by Congress.
G.M. said that it was calling and sending letters to the dealers being allowed to stay open and that they would receive notification by Monday.
“By doing this, we save a lot of time, energy and dollars, saving us and dealers from going through what could be a very long arbitration process,” Jim Bunnell, G.M.’s general director of dealer network support, said in a conference call with reporters.
Mark L. Reuss, the president of G.M. North America, said the dealers to be reinstated were chosen based on business criteria, not because they were likely to win in arbitration or to put up a costly fight.
“We’re trying to do the right thing for our dealerships, for G.M. and for the taxpayer, quite frankly,” Mr. Reuss said.
The arbitration process was established by Congress after its members were inundated by complaints from G.M. dealers in their districts.
But as its sales fell last year by about 50 percent, the company said it needed to thin out its dealership network so it and the remaining dealers could be more profitable.
Congress has made no similar demands that G.M. revive its factories.
Representative Steven C. LaTourette, a Republican of Ohio who helped establish the arbitration process, said the loss of dealerships affected individual communities. “You’re talking almost 40,000 people going back to work, potentially. The car dealer, in many cases, supports the Little League and supports the Chamber.” By forcing the dealerships to close, he said, “you’ve destroyed the fabric of some communities.” G.M. softened its opposition to the dealer cuts after Edward E. Whitacre Jr. became chief executive in December. It had more than 6,000 dealers before bankruptcy and now could have close to 5,000 when the arbitrations conclude. It had previously set a target of fewer than 4,000, but Mr. Bunnell said on Friday that the reinstatements would not make G.M.’s dealership network too large.
G.M. had been concentrating on consolidating its operations to match its diminished market share, but Mr. Whitacre has pushed people at all levels of G.M. to focus primarily on selling more vehicles. Having more dealerships could help him accomplish that goal.
The dealers that G.M. is allowing to stay open will have 10 days to review and sign the letter of intent they will receive from the company, then 60 days to fulfill new requirements, including maintaining adequate capitalization and financing.
Meanwhile, 418 dealerships are still fighting to be reinstated at Chrysler, the other Detroit automaker to go through bankruptcy protection last year. Chrysler forced 789 dealerships to close last June.
“To some degree there’s been some precedent set,” said Michael Boudreau, a director with a consulting firm, O’Keefe & Associates in Bloomfield Hills, Mich. “The Chrysler dealers will probably dig in their heels and fight a little bit harder now.”
Many of the terminated G.M. dealers never announced their status publicly and continued to operate much like other dealers except that they were not allowed to order new vehicles from factories. Still, their inability to sell the most popular models since last May undoubtedly cost them customers and hurt G.M.’s overall sales.
In February, the Ford Motor Company outsold G.M. by 471 vehicles. If each of the dealers now being reinstated had been operating normally and sold just one additional vehicle last month, G.M. would have stayed in first place.
Separately Friday, G.M. appointed Patricia F. Russo, a former chief executive of the French telecommunications company Alcatel-Lucent, as its new lead outside director. Under a new bylaw, Ms. Russo, one of 10 people the Treasury Department appointed to G.M.’s board after the carmaker emerged from bankruptcy in July, was given the authority to convene special board meetings as needed.