Pity the poor GM dealer who may just now be coming to terms with how weak their relationship is with the once might automaker. Healthy dealerships, particularly those operating in areas of the country where competition between dealers selling the same GM brand isn’t so tough aren’t affected, but smaller dealerships, particularly those located in markets where there are too many dealers to justify the numbers will soon be left out in the cold.
Rolling Out Government Union Motors
Now that GM is effectively being transformed into Government Union Motors (GUM) — owned by the U.S. government with secondary ownership in the hands of the United Auto Workers, lots of dealers will be given walking papers and ordered to shut down between now and the end of 2010.
In a bid to shrink its bulging dealer network from over 6200 dealers to around 3600 dealerships over the coming twenty months, GM says that they’ll terminate their relationship with low performing dealers and do that without compensation. The automaker says that they’ll buy back new car inventory, car parts, special tooling and some signage, but if the dealerships are looking for compensation ala Oldsmobile, it won’t be coming.
Abandoned Brands Will Lose Out Too
Quite a number of dealerships have been vulnerable anyway, particularly those selling Saab, Saturn and Hummer vehicles. Stand alone Pontiac dealers will also go away, but for those fortunate to have a combined Buick Pontiac GMC dealership, they’ll manage to soldier on with one less brand.
Next month, GM will send notices out to as many as 1200 dealerships that they will not be part of the reinvented GM. 500 dealers will be closing due to normal attrition, 500 more will go away when Saab, Saturn and Hummer finally disappear while the automaker will seek to close or combine an additional 500 dealerships in overcrowded markets.
Dealers Not Leaving Without A Fight
Lest the Obama Administration, General Motors and even Chrysler think that dealerships can be shut down without compensation, The Wall Street Journal ran a story on Wednesday suggesting otherwise. In, “GM, Chrysler Dealer Groups Retain Law Firms,” the newspaper reported that large dealer networks have retained the services of several law firms to help them fight back.
The lawyers have been retained to make sure that the dealers receive payments owed to them, especially if either automaker files for bankruptcy. Regarding the work of one law firm, the WSJ reported, “The firm will participate in negotiations with GM on dealers’ behalf and work with lawyers retained by individual dealers. Dealers operate under contracts with auto makers that require the company to cover obligations, ties to warranty repairs, inventory buy downs and floorplan assistance payments.”
The road to remake GM as well as Chrysler isn’t as simple as some might believe that it’ll be. Contracts cannot be automatically dimissed and litigating parties are allowed their day in court. No matter what happens, GM will be slicing and dicing its dealer network, but perhaps they’ll have to put some money on the hood to compensate aggrieved dealer franchise holders.
Related Reading — Checking In On The GM Bazaar
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