GM officials stay tight-lipped on locations of closing dealerships

May 18, 2009

By: Brian Brus

The Journal Record

OKLAHOMA CITY – Oklahoma’s General Motors automobile dealerships received the same bad news Friday their Chrysler counterparts faced a day earlier as the company announced its intentions to cut relations with more than 1,100 operations across the country. Attorney Eric Johnson with the Phillips Murrah firm in Oklahoma City said the main difference between the two is that GM is keeping its picks silent as part of its cost-savings restructuring efforts, whereas Chrysler had to publicly reveal dealership identities in its bankruptcy filings. So it’s more difficult to gauge their reactions and recourse, he and other lawyers said. “And for good reason, they’re not going to say anything,” Johnson said. “Especially with this not being final as of yet.

It’s just a notification and it sounds as though there may be an appeal process as well. “It’s a real interesting conundrum for GM right now. They haven’t put the nail in the coffin yet, but they’re putting those dealers on notice that they may be terminated,” he said.

FedEx letters bearing the news that GM is cutting nearly 20 percent of its U.S. network began arriving Friday morning at its franchises. The letters state that dealers were judged on sales, customer service scores, location, condition of facilities and other criteria. GM’s announcement is more bad economic news for dealers, communities and businesses still reeling from Chrysler’s actions. Both automakers are scrambling to reorganize and stay alive in a severe recession that has devastated sales of cars and trucks.

While GM doesn’t own the dealers, its network is too big, causing dealers to compete with each other and giving shoppers too much leverage to talk down prices and hurt the company’s future sales, said Mark LaNeve, GM’s vice president of North American sales and marketing. The cuts are part of a larger GM plan to drop 2,600, or nearly 42 percent, of its 6,200 dealerships as the automaker tries to restructure outside of bankruptcy court and become profitable again. Thousands of jobs will likely be lost and governments will lose untold dollars in tax revenue as dealerships are forced to close. Johnson said that while Chrysler had a single list of nearly 800 U.S. dealers as part of the company’s bankruptcy filing, “GM has control of the situation and is doing it piecemeal. I’ve been told that there is a list, but that’s in the hands of GM and they’re not letting go of that for anything.” “In the letter, they’re basically saying, ‘We don’t think our relationship will continue past October 2010, but we’ll give you ’til the end of the month to let us know if you think there’s a compelling reason we should continue our Home General News Real Estate Energy Health Care Capitol Law Opinion Finance Nonprofit Blogs Events Photo Gallery relationship,’” Johnson said. “The Chrysler letter said, ‘It’s all terminated June 9. We’re not buying your cars; we’re not buying your parts; we’re not buying your specialty tools.’ It’s a night-and-day difference.” Oklahoma Auto Dealer Association President Steve Rankin said the result is about the same for dealers: massive change and uncertainty in the local market. “What they do now really depends,” he said. “There might just be dealers out there who are tired of dealing with it all and decide to check it in.” Those dealers who opt to tough it out by moving to another company brand might have several options as imports expand, especially in rural markets where they haven’t been as visible. Hyundai, for example, has expanded lately into Muskogee and McAlester.

As for legal recourse, Johnson said, because GM is not yet in bankruptcy, individual dealers might look into taking advantage of the state’s law protections for dealerships. Lawyer Stephen J. Moriarty with the Fellers Snider law firm agreed: “There are state-specific laws in terms of what needs to be accomplished to terminate those dealership agreements. The dealers have far more protection under state law than they do under bankruptcy law. “But if GM were to file bankruptcy next week, those dealers would be in the same boat that Chrysler dealers are in, and GM would attempt to reject those dealership contracts under bankruptcy code.”

Aaron Bragman, an automotive industry analyst with the consulting firm HIS Global Insight, said GM likely will go into bankruptcy protection on June 1, but it’s starting to negotiate deals ahead of the filing to speed up the process. “GM has been ... acting as if they are negotiating a prepackaged bankruptcy,” Bragman said.

The Associated Press contributed to this report.