General Motors sends pink slips to 1,100 dealers

General Motors began notifying 1,100 of its dealers today that it plans to discontinue their franchises.

The announcement comes just one day after Chrysler sent notices to 789 of its dealerships, informing them they would soon no longer be able to sell new Chrysler vehicles.

Unlike Chrysler, which undertook its actions as part of a bankruptcy filing, GM does not intend to make the list of discontinued dealers public. It will most likely result in the company choosing not to renew its dealership agreements with those that received the bad news, allowing those effected to “wind down” their businesses by October 2010. Chrysler’s “rejected” dealerships will likely be forced to end their new car sales by June 9.

Ricky Smith received the bad news this morning, in the form of a letter from Federal Express. Just two days ago, Mr. Smith was certain his dealership, Ricky Smith Buick Pontiac GMC, in Weymouth, Mass., would survive the dealership shakedown.

“We are as confident as you can feel with the ax hanging over your head,” he said Wednesday. Today, however, Smith was in shock.

He’s worked at the dealership for 37 years. “I’m very disappointed. Something we’ve worked so long for is in jeopardy of going away.”

Smith intends to fight the decision, and the letter he received invited dealers to send concerns to the company that might cause them to reconsider.

But such changes of heart are unlikely, says Susan Garontakos, a spokesperson for GM. The decisions were based on a series of performance metrics that took into account sales performance, geography, and a range of other criteria that were not a secret to dealers, she says.

Many of the dealers, she says, should “understand that they are underperforming as it relates to the requirements of the sales and service agreements.”

In a conference call with reporters this afternoon, General Motors North America Vice President Mark LaNeve drew a distinction between the GM announcements and those of Chrysler yesterday, noting that dealers who received the bad news would receive corporate support as they tried to sell off their existing inventory over the next 17 months.

“As we rebuild the GM business into a more efficient and a more flexible company … that applies also to the dealer body,” Mr. LaNeve said. “We’ve got too little industry right now, and too little sales to contend with.”

The 1,100 dealers notified are just one component of GM’s plan to shrink its dealership rolls. They will join over 500 Saturn and Hummer dealers, in addition to several hundred as yet unidentified dealers in being phased out from the company. (GM intends to sell its Hummer, Saab, and Saturn divisions.)

Overall, the company hopes to shrink from its current pool of 5,969 dealers to about 3,600 by 2010. The company says reducing the numbers will increase dealer profitability and allow the remaining dealers to be more competitive with other car manufacturers. The 1,100 dealers represent 18 percent of the company’s dealers, but only seven percent of their sales in 2008, the company says.

Combined, the Chrysler and GM reductions will phase out about 9 percent of the nation’s roughly 38,000 dealers. Thousands are likely to lose their jobs.

Smith, the car dealer, doesn’t quite know yet what the future will hold for him. He’s likely to transition into used car sales and says he understands why GM is doing what it’s doing. He acknowledges that as the company contends with a possible bankruptcy filing next month, nothing is certain.

“I like to think they’re being forthright,” Smith says of GM’s announcement. “I’m not one that sees a lot of conspiracies around … what else can I do?”

Don Sudbay, head of the Don Sudbay Family Automotive Center in Gloucester, Mass., got good news this morning from his district General Motors manager. His brother, who runs the family’s Chrysler dealership, also escaped the downsizing when letters went out yesterday.

Mr. Sudbay says the entire process has been exhausting and emotional as the two brothers field calls from friends and fellow dealers, some of whom didn’t make the cut.

“It’s something that never in a million years would I have expected,” he says. “It’s totally surreal.”