General Motors Corp is expected to slash up to 1,200 dealers as it struggles to dramatically pare down its operations and eliminate billions of dollars of costs ahead of an anticipated bankruptcy filing by the end of this month.
GM's cuts are expected to be announced near midday on Friday and follow the announcement on Thursday that smaller rival Chrysler would eliminate almost 800 of its 3,100 dealers within the next few months.
The elimination of U.S. dealerships and the jobs that go with them, was an anticipated, but painful, part of the U.S. auto industry shake-up following the economic slowdown, global credit crunch and U.S. sales collapse to less than 10 million vehicles a year from more than 17 million.
The dealer cuts are part of GM's already announced plan to cut about 2,600 of its roughly 6,200 U.S. dealerships as it struggles to streamline costs and drop unprofitable brands that include Saab, Hummer and Saturn. Today's cuts will be in addition to dealerships that would be eliminated when it sheds those brands.
GM's North American sales vice president, Mark LaNeve, is scheduled to host a conference call at noon EDT on Friday to discuss the consolidation activities.
GM shares were slightly lower on Friday morning at $1.13. The shares traded as high as $21.37 last May.
Chrysler on Thursday said it would terminate 789 of its 3,181 dealerships as of June 9, a move that could cost up to 40,000 jobs, according to the leading dealer trade group.
Dealers in Pennsylvania, Texas, Ohio, Illinois and in Michigan -- where Chrysler is based -- would be hit hardest.
The bankruptcy process that we are in allows us a once-in-a-lifetime chance to achieve a right-sized dealer body, Chrysler Vice Chairman Jim Press said on a conference call. We do not have enough production or sales to keep all the dealers alive or prosperous.
Chrysler sought permission from a U.S. bankruptcy court in New York to terminate franchise agreements with the dealers. Fifty percent of its U.S. dealers account for 90 percent of sales, according to court documents.
Chrysler on Friday sought to ease some of the industry-wide jitters when Chief Executive Robert Nardelli said the company would begin paying its suppliers for invoices that had been sent prior to its filing for Chapter 11 protection on April 30.
Nardelli also said the company was moving ahead with plans to establish contractual relationships between the new Chrysler/Fiat company and suppliers.
The dealer cuts were greeted with surprise in some quarters, anger and sadness in others.
Mark Calisi, 47, who owns Eagle Auto-Mall in Riverhead, New York, said he was devastated to learn that his dealership would be closed. He said Chrysler accounts for a third of his business, which also sells Volvo, Mazda and Kia, and that on Thursday he had to sack 30 of his 100 employees.
I can't even give severance because Chrysler's not taking back my parts, he said.
Calisi, who said he'd just invested $8 million in a new dealership, blamed the federal task force overseeing auto industry restructuring for his plight and said he was weighing his legal options.
I have been with Chrysler for 13 years and my father was with Chrysler for 30 years, he said. No matter which way you cut the cake it's devastating.
UNION TALKS CONTINUE
While GM continues to shrink its operations, the company continues to talk with its largest union, the United Auto Workers, about a deal to slash employee costs.
Under the direction of the U.S. Treasury, GM is said to be close to a deal with the UAW that would cut its hourly labor costs by more than $1 billion a year, the Wall Street Journal said, citing people familiar with the matter.
GM expects to halve its remaining cash outlays for retiree health costs to about $10 billion, and supplement that contribution with a 39 percent equity stake in the reorganized company, the people told the paper.