GM to Close 400 Dealerships Each Year Until 2012

Posted: Jan 27, 2009 10:22 a.m.

General Motors has 6,375 dealerships in the United States. Its closest rival, Ford, boasts less than 3,800. Toyota, the world's largest automaker, claims less than 2,000. As part of its push toward profitability, GM needs to consolidate its dealership network and stop competing with itself for your business.

Left Lane News reports, "In a bid to make the company more financially viable, GM has announced a plan to cut 400 dealers per year until 2012." The company "hasn't set specific elimination criteria yet, but the automaker will base its decision on the age of the dealership, location, volume, and customer satisfaction."

Autoblog notes, "GM's initial viability plan to Congress proposed an eventual reduction to 4,000 dealerships. No one knows yet, though, how GM plans to do that." The plan, as announced, would not trim enough dealerships to meet that goal by 2012.

But closing a dealership is not a simple, or inexpensive, proposition for an automaker. The Detroit Free Press explains that closing dealerships is "the toughest, most political -- and potentially litigious -- battle that Detroit's automakers face in restructuring their businesses in return for billions of dollars in federal loans." Automakers looking to shed dealerships are "hamstrung by state laws, individual franchise contracts and the gritty will of dealers who want to keep their businesses alive."

The last time a major automaker shut down a large brand in the U.S. was in the year 2000, when GM closed Oldsmobile. The Free Press reports, "It took four years and $1 billion to shutter 2,800 dealerships, largely because so many dealerships sued to protect their contracts." Because of the lawsuits after the Oldsmobile closure, the Free Press notes, "experts have estimated that the fastest, easiest way for automakers to shed dealerships they don't need is to pay them to close. However, that likely would cost several million dollars per store," and introduce possible political difficulties, since "experts said they don't believe the federal government or taxpaying public will like the idea of federal loans being used to pay independent businesspeople to close their businesses."

While GM executives haven't admitted this, the company might even decide to wait and see if the poor economy will force some of its dealers out of business. The Free Press notes, "More dealers are expected to fail or close up because of poor sales in the coming year than a typical year because of the weak economy."

Some have accused GM of trying to speed that process. Autoblog reports, "Some dealers say GM is using GMAC to force dealers out by setting capital requirements beyond a dealer's reach. GM says it has no intention of using GMAC in such a way." But dramatic scenes like the late December incident in which GMAC repossessed all of the cars on a Philadelphia dealer's lot may become more commonplace in 2009.

All of this, however, remains good news for car shoppers. Dealers are being pressed to prove their ability to sell cars and keep customers happy -- leaving you in what might be the strongest negotiation position you've ever been in. If you're in the market, research the best car deals with U.S. News' car rankings and reviews.