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Dealer Group “Disappointed” in GM’s Plan to Close Thousands of Stores. Customers Could be Too

NADA says GM needs to treat dealers fairly and is lobbying for concessions. Owners need to lobby for themselves.

by on Apr.29, 2009

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"We feel a strong sense of disappointment that GM has, for whatever reason, decided to accelerate dealer consolidation in such a drastic way."

The controversy surrounding General Motors pending reorganization continues to attract disapproval from related firms struggling to survive the effects of GM’s forced transition to a drastically smaller auto company. For owners of GM vehicles and prospective buyers, the next 30 days will be critical time when the choice of a buying a car, or having it serviced at a dealer could affect the value of what is still the second largest investment – after a home — that most Americans make. GM has said it will close 2,641 dealer locations from its existing 6,246 stores by next year.

The latest criticism comes from a statement by the National Automobile Dealers Association, which said that GM’s plan to eliminate dealers came as a “surprise” and will hurt sales, even though the closings were basically outlined by GM back in February.

There is also the now real threat of lawsuits by dealers against the company that could drag on for years. It is clearly not in the interest of GM vehicle owners to get caught in the middle of litigation, even if their warranties will be honored. Owners should be confident that the dealer they are using has a future, and that its employees are properly compensated and following the authorized service procedures. Can a customer expect fair treatment from a dealer that is financial threatened?

“GM’s decision to radically cut its dealer network over the next 18 months comes as a surprise. We understand the realities of current market conditions. But nevertheless, we feel a strong sense of disappointment that GM has, for whatever reason, decided to accelerate dealer consolidation in such a drastic way,” said John McEleney, chairman of the National Automobile Dealers Association.

NADA has asked GM and Chrysler dealers to contribute $2,000 for each store to a legal fund in the event of a bankruptcy. “It is critically important that dealers have legal advisers with expertise in bankruptcy and corporate restructuring,” Nada said to GM dealers in a letter. “ If GM were to file, its bankruptcy would almost certainly be one of the largest and most complex corporate reorganizations in the nation’s history.” Chrysler dealers got a similar plea. Bankruptcy or not, the threat of legal action is real.

GM said it is moving forward with dealer closings to meet the terms for continued loans imposed on it by the Auto Task Force. The GM goal is to accomplish this reduction in an “orderly, cost-effective, and customer-focused way.” GM said that fewer U.S. dealers will allow for a more competitive dealer network and higher sales effectiveness in all markets. But it didn’t provide any information that consumers could act on now.

“It is imperative that GM treat all of the dealers fairly and equitably and that they be properly compensated. After all, it’s not out of any fault of their own that these dealers are being forced to close their businesses,” McEleney concluded.

Unfortunately for consumers there is no way to know at this time what dealers will close and when that will happen or which 3,605 GM dealers will survive. More details of the plan will not be provided until next month.

One thing is certain, the litigation is just beginning. This is most likely in the case of the 2,627 Pontiac dealers in the U.S. While it’s true that all but 27 of them have other franchises, how existing Pontiac owners are going to get their cars serviced, as Pontiac is shut down by year end is unclear. No doubt some of the dealers will keep service departments open and concentrate on used car sales, but some will go the way of Studebaker stores.

And its not just Pontiac stores that will be involved in contentious closings.

“We understand that GM needs to reduce the number of dealerships in order to survive the financial crisis that they have gotten themselves into, but GM must honor the legal and contractual obligations they have to their loyal dealers,” said Douglas Jones of Haskell Slaughter Young & Rediker, LLC, a law firm in Birmingham, Alabama. Jones is involved in a legal challenge against GM and GMAC on behalf of Abercrombie Chevrolet in Hartselle, Alabama.

“Bond holders and union members are not the only groups that have financial obligations due to them by GM,” said Jones. The litigation alleges that more than $160,000 in rebates and warranty funds were withheld from the dealership in an attempt to drive Abercrombie out of business. 

Drive, walk or crawl, anyway you describe it 2,641 GM stores will be gone by the end of next year. It’s a tragedy for all involved. NADA estimates that GM could lose a $35 billion in sales revenue. Another 137,330 dealership employees will lose their jobs, and state and local governments will lose an estimated $1.7 billion in sales tax revenue. So pick your dealership carefully, so you can avoid the closing act of the sad drama.

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One Response to “Dealer Group “Disappointed” in GM’s Plan to Close Thousands of Stores. Customers Could be Too”

  1. Any way you look at this, it’s a tragedy but these dealers knew what was coming so all the surprise comes as something as a shock to me.

    All the dealers agree that GM must pare down the number of storefronts, so long as it isn’t theirs. For too long state franchise laws have protected dealers, many whose business practices have left something to be desired. The difference here, as opposed to the shutdown of Oldsmobile, is that GM no longer has the deep pockets to buy them out; the US Treasury and indirectly the taxpayers simply won’t allow it.

    Dealer consolidation has been long in coming, and often delayed. Now it can no longer be postponed.

    In many smaller communities, where I believe a disproportionate number of cuts will come, the domestic new car dealer has always been the pillar of the community, supporting everything from Little League teams (I played for the L&S Chevrolet Red Wings back in the sixties in Union, NJ) to providing cars for their local school’s driver’s ed programs.

    These contributions will be missed but if GM is to survive and ultimately prosper with fewer brands, some dealers will close. It happened with Studebaker, AMC, and ironically Fiat, more than 25 years ago. Some will simply close as their showrooms are starved for product, others will transition to other, possibly automotive-related businesses. Call it automotive dealership Darwinism, call it whatever you like, but it is inevitable if GM (as well as Ford and Chrysler) are to survive.

    Richard Truesdell
    Editorial Director, automotivetraveler.com