GM to reinstate 661 dealerships

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In a move that could provide economic relief for hundreds of communities nationwide, General Motors Co. said it would reinstate nearly 700 dealerships that it had planned to drop from its sales network.

The automaker sought to shed what it considered excess dealers as part of a bankruptcy reorganization last year, an effort to bring its franchise network into better balance with its declining car sales. Closing unprofitable and poorly performing franchises was expected to channel business to the stronger dealers.

But 1,160 dealers took the automaker to arbitration, and on Friday GM said it planned to let 661of them keep their franchises as long as they meet “standard” performance criteria for their facilities and financial status, among other factors.

Bill Hatfield, owner of Hatfield Buick GMC in Redlands, hopes he is on the list.

His dealership has been selling cars since 1913 but received a letter back in May saying the franchise would not be renewed.

On Friday, Hatfield said his phones were “ringing off the hook” as local customers eagerly hoped that the dealership would be saved.

“We’re kind of in a waiting situation. We’ll either get the letter or we won’t, but I’m sitting here on eggshells just waiting to see what they do,” Hatfield said of his dealership. “We’re still profitable, and we’ve worked all along with the idea that we’ll get the franchise back.”

GM, which did not provide a list of the dealers or locations that would be reinstated, said it planned to call the franchise owners it will keep next week and to follow up with formal letters.

“We are eager to restore relationships with our dealers and get back to doing what we do best -- selling cars and taking care of customers,” said Mark Reuss, president of GM North America. “The arbitration process creates uncertainty in the market. We believe issuing these letters of intent is good for our customers, our dealers and GM.”

It also might help defuse a thorny public relations issue. After GM and Chrysler Group, which also went through a bankruptcy restructuring last year, disclosed plans to close a combined 3,000 franchises, dealers and their supporters complained, arguing that such businesses were important to the economies of their local communities.

The average dealer employs close to 50 people and pumps $16.5 million a year into the local economy, including payroll, taxes, payments to vendors, advertising and charitable giving, said Paul Taylor, chief economist of the National Automobile Dealers Assn.

Congress stepped in and passed legislation requiring the automakers to set up an arbitration process that would be completed by July 15.

That deadline created a certain expediency to reinstating the hundreds of dealers, GM officials said.

“It would have been virtually impossible to arbitrate 1,100 cases in a 120-day period,” Susan Docherty, GM’s U.S. marketing chief, said in a conference call announcing the decision.

GM has not come anywhere close to its goal of dramatically slashing its dealer network. The company had about 5,500 dealership locations as of Jan. 31 -- just 700 fewer than at the end of 2008, prior to the auto industry’s sales plunge.

But maintaining hundreds of dealers more than it expected is unlikely to hurt GM’s financial performance, said Jeremy Anwyl, chief executive of auto information company

GM is likely to make a profit this year after years of massive losses, its CEO, Edward J. Whitacre Jr., predicted in January.

“It doesn’t really cost GM that much to have a dealer that is not very successful,” Anwyl said.

Incidentally, the impetus for closing dealerships came from the example of Toyota Motor Corp., which because of its millions of recalls in recent months is now losing sales to GM and other U.S. automakers.

“Everybody looked at how Toyota has only 1,500 dealers and that those dealers are more profitable,” Anwyl said. “Ideally, that allows those dealers to invest in nicer facilities and hire better salespeople because they sell more cars per store,” he said.

But, Anwyl said, terminating hundreds of dealers doesn’t automatically produce those advantages and may actually create some disadvantages.

“A large number of dealers gives you coverage in rural America,” he said. “Where are those people supposed to buy vehicles?”