Deal is Up: Chrysler, GM Cut Contracts
By: The Associated Press

DETROIT (AP) — A day after Chrysler LLC told a quarter of its dealers that it won't renew their contracts, owners of General Motors Corp. dealerships are in the same boat.

GM has decided not to renew the franchise agreements of 1,100 U.S. dealers. The news comes just a day after crosstown rival Chrysler announced it was dropping 789 of its roughly 3,200 dealerships by around June 9. Both companies have too many dealerships for too few sales are slashing costs as they race to restructure.

GM spokeswoman Susan Garontakos said the company will not make public a list of dealers to be cut, leaving the decision to release information to individual business owners.

GM's dealer cuts are part of the company's plan announced last month to cut more than 2,600 dealers by 2010. The remaining cuts will come from closed Saturn and Hummer dealers, along with 400 dealers that the company expects will close voluntarily. Another 500 would be consolidated into other dealerships.

Seventeen of the 24 Chrysler dealerships in West Virginia are slated to be closed, a move the state's auto dealers' association says could eliminate about 235 jobs and force thousands of consumers to drive farther for the brand and service.

"A few jobs in this part of the country is considerable," he said. "Their employees live in this community and spend money here, and if they're not working, it's a hit to the economy," said Rainelle, West Virginia town recorder Pete Adams.

Four dealerships in Lehigh Valley, Pa., which includes the cities of Allentown, Bethlehem and Easton, are slated to close. Auto sales are a major source of jobs in the Lehigh Valley, with 55 new-car dealerships employing nearly 2,800 people in the third quarter of 2008, according to state data.

But, the GM dealer cuts are likely to have a much greater impact than Chrysler's. While many Chrysler dealers also sell other brands and will stay open after losing their franchises, a large number of GM dealers sell only GM vehicles. So if their franchises are revoked, they run a greater risk of closing for good.

In both cases, the cuts will cost thousands of jobs, create holes in local tax bases, eliminate community pillars and create economic ripple effects across the country.

Chrysler is operating under bankruptcy protection, so it is likely to have an easier time tearing up its franchise agreements with its dealers than GM. A hearing is scheduled for June 3 in U.S. Bankruptcy Court in New York for the judge to determine whether to approve Chrysler's motion to fire its dealers.

Chrysler executives said Thursday the company is trying to preserve its best-performing dealers and eliminate ones with the weakest sales. More than half of the dealerships being eliminated sell less than 100 vehicles per year, they said, and account for 14 percent of U.S. sales.

Chrysler has received $4 billion in government aid, while GM has received $15.4 billion. GM is continuing to restructure out of court and faces a government-imposed deadline of May 31 for doing so. Several difficult hurdles remain, and many experts say that it is all but inevitable that it will follow Chrysler into bankruptcy.

To remake itself outside of court, GM must persuade its bondholders to swap $27 billion in debt for 10 percent of its risky stock. In addition, it must work out deals with its union, announce factory closures, cut or sell brands and shutter dealers.

Swapping its bond debt for equity may be its most difficult task. The company is trying to get 90 percent of its bondholders on board for the so-called debt-for-equity swap. A committee representing the bondholders has rejected the swap, saying it unfairly favors the government and the United Auto Workers union. They have counteroffered seeking a 58 percent ownership stake, which the automaker in turn rejected.

On Thursday, GM said that bankruptcy is possible if it doesn't get enough takers on the exchange. If that happens, it likely would sell most of its assets to a new company and liquidate the rest, the automaker disclosed in a regulatory filing.

The automaker also says it could seek court approval of its reorganization plan even if creditors vote against it.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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