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GM Dealers Wait With Heads on Chopping Block

About 1,100 General Motors dealers are waiting for news from Detroit set to come at noon today saying which dealers will live and which will die.

Bankrupt Chrysler announced on Thursday that it would terminate contracts with about 25 percent, or 789, of its dealers nationwide, and announced which were getting the axe.

GM, which can expect the same kind of angry pushback from terminated dealers as Chrysler is getting (complete with threatened lawsuits), will inform the unlucky dealers but not name them publicly. GM said it will leave that decision up to individual dealers.

The GM closings could have much deeper local impact than the Chrysler ones.

Because Chrysler has been the smallest of the Big Three for some time, the typical Chrysler dealer also sells other brands and has a better chance of staying in business after Chrysler pulls its products. GM dealerships, on the other hand, typically sell only GM vehicles and face a far higher risk of closing altogether when GM pulls its products.

GM announced last month that it wants to cut 2,600 dealers by the end of next year. It has more than 6,000.

The nation's Big Three automakers have been criticized for having too many dealerships, a remnant of a time when they dominated the U.S. market and dealerships were handed down through family generations like birthrights.

Now, with the U.S. auto industry in steep decline (part of a global automaker depression), some analysts (and the U.S. government, which has taken an active role in running GM and Chrysler) believe the two automakers have too many dealers fighting over an increasingly small pie of car buyers.

But the endangered dealers have been mounting a credible counter-attack, noting that they don't cost the automakers any money. Indeed, dealers provide a big chunk of automaker revenue because they buy the cars the automakers produce before turning around, marking them up and selling them to the consumer.

Further, vehicle dealerships are among the largest local taxpayers in their communities, they provide a number of philanthropic services (such as sponsoring Little League teams) and they've been a major advertiser in newspapers, which are experiencing their own crisis.

Check back here for breaking news on the GM dealer closings; we're awaiting a GM conference call later today.

-- Frank Ahrens
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By Frank Ahrens  |  May 15, 2009; 10:49 AM ET
Categories:  The Ticker  | Tags: Chrysler, GM, auto dealers, bankruptcy  
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