General Motors Co said on Friday it will offer reinstatement to 661 of its U.S. dealers that had been targeted for closure as part of its bankruptcy restructuring last year.

GM planned to terminate franchise agreements with about 1,300 U.S. dealers by the end of 2010 in a bid to operate its retail networks more efficiently and return the company to profitability. Some 1,160 of them have sought arbitration.

GM North American President Mark Reuss said the automaker has opted to reinstate more than half of the dealers appealing closure in an effort to complete the arbitration process before the congressionally mandated deadline of July 15.

The company plans to continue settlement talks with some 500 dealers who will not be offered reinstatement and remain in arbitration, Reuss said.

To be reinstated, the dealers will have to meet certain business criteria, including minimum working capital requirements, sales and profitability within 60 days of receiving reinstatement letters next week, GM said.

We are highly confident that this is the right size and the right quality, Reuss said in a conference call with reporters.

GM had 6,150 dealerships at the end of 2008, including franchises of Saturn, Saab, Hummer and Pontiac -- the four brands GM is selling or winding down.

The Treasury owns 60 percent of GM after the 2009 bankruptcy restructuring.

Congress in December required an arbitration process for terminated dealerships at GM and Chrysler, which received more than $65 billion combined in taxpayer-supported bailouts and other financing over the past year.

Chrysler closed nearly 800 showrooms last June when it emerged from bankruptcy under new management led by Fiat . More than half of them have sought arbitration, saying their franchise rights were terminated unfairly.

The arbitrator under the legislative plan would be required to consider dealer profitability over the past four years as well as how a dealer would support the plans at GM and Chrysler to become viable.

Arbitration would also take into account how well a dealership was capitalized and dealership performance.

GM Chief Executive Ed Whitacre said in January the company would review the circumstances surrounding termination decisions that were made under his predecessor, Fritz Henderson, who was forced out in December in a split with the board.

GM has already agreed to reinstate dozens of dealers in an earlier, in-house appeals process. It has also budgeted up to $600 million to compensate dealers.

(Reporting by Bernie Woodall and Soyoung Kim, editing by Matthew Lewis and Phil Berlowitz)