The New York Times, DealBook blog
July 7, 2009
General Motors asked a federal bankruptcy court on Tuesday for permission to drop 38 dealers that have rejected the automaker’s offer of a payout to wind down their operations, Reuters reported.
G.M. has used its government-sponsored bankruptcy process to slash dealerships and retail franchise obligations it says have cost it about $2 billion annually to support.
In a filing with United States Bankruptcy Court in Manhattan, G.M. asked Judge Robert E. Gerber for approval to drop 38 dealers in 20 states that had not agreed to its closure terms.
The termination of the dealer franchise agreements would be effective this week if G.M. is allowed to cut free of the holdout dealerships.
When it entered bankruptcy last month, G.M. had about 6,000 United States dealerships, a sprawling retail network built up when it had more than twice the domestic market share it now holds.
About 4,100 G.M. dealers have signed agreements to continue with the new G.M. expected to emerge from bankruptcy as soon as this week, the automaker has said.
The remaining dealers have been offered “wind-down” agreements offering them up to 16 months to sell off their remaining vehicle inventory and operate their repair shops.
About 98 percent of G.M. dealers being dropped by the automaker have signed such wind-down offers, which also give them a one-time cash payout.
In 1980, G.M. commanded a 45 percent share of the domestic market. That fell to 22 percent in 2008 and is expected to dip as low as 19.5 percent this year under the automaker’s restructuring plan.
But G.M. dealerships, which are run as independent businesses and protected under state franchise laws, have not declined by the same margin as its sales in recent years.
G.M. said in its court filing on Tuesday that more than half of its dealerships were unprofitable and on average more than 89 dealerships were going out of business each month in 2009.
In its filing, G.M. named the holdout dealerships it is seeking to drop, the first time it has named individual dealerships in the bankruptcy process that began on June 1.
Late Sunday G.M. won approval from Judge Gerber to sell its best assets to a new company underwritten by the government. The Treasury will have a 60 percent stake in the new G.M. in exchange for its $50 billion in financing.
A hearing on G.M.’s request to terminate the holdout dealerships is set for Aug. 3.
G.M. Motion Seeking to Cut 38 Dealers
