General Motors moves to shed 1,100 dealers

GM takes action in a restructuring plan that would shrink its distribution network from 6,000 to 3,600 by the end of 2010. The company is trying to avoid bankruptcy.

The painful reshaping of the American auto industry hit home this week, delivered overnight by FedEx and UPS.

Over the last two days, General Motors Corp. and Chrysler moved to cull nearly 2,000 of their dealers, with at least 1,000 more to come. And Chrysler indicated that it was likely to break its contracts with hundreds of parts suppliers, setting the stage for yet another blow to American manufacturing.

The sweeping cuts were a reminder that the decades-long decline of the U.S. automakers truly does affect the nation as a whole. Dealer groups estimate that the moves could cost 100,000 jobs and billions in state and local tax revenue. That’s not even counting the $23 billion in federal loans to GM and Chrysler that taxpayers may never see repaid.

“This is the price of restructuring. It hits home everywhere,” said Thomas Klier, senior economist at the Federal Reserve Bank of Chicago. “Every town has a car dealership. That’s what was left out of this when the debate about the auto industry started.”

On Friday, GM informed 1,100 of its 6,000 dealers by overnight letters that it would not renew their franchises come October of next year, giving them 18 months to wind down their businesses. The company has said that as many as 500 more dealers would get the ax next month.

A day earlier, Chrysler asked a bankruptcy judge to cancel the franchises of 789 of its 3,200 dealers, a process that leaves them without legal recourse and could stick them with millions of dollars in unsold inventory when they close in just four weeks. Chrysler, too, indicated that more cuts could come soon.

Unlike Chrysler, GM didn’t publish a list of the dealers it was getting rid of, so a complete regional tally isn’t known. Although dozens of California dealers were expected to be named, only a few spoke out Friday.

Bill Hatfield, owner of Hatfield Buick GMC in Redlands, said he felt a sense of dread as he watched a FedEx truck pull up to his showroom.

“It’s a little bit like a death — you know one’s coming, or you’re worried one’s coming, but when it comes it’s still a hell of a shock,” he said.

Inside was the dreaded letter, telling him the automaker saw no future for his 96-year-old dealership. It survived the Great Depression and two World Wars, but not the restructuring of the U.S. auto industry.