NEW YORK — General Motors Corp. on Friday told about 1,100 dealers, or nearly 20 percent of its U.S. network, that they will be fired by the automaker late next year because their sales are weak.
GM's announcement is more bad economic news for dealers, communities and businesses still reeling from Chrysler's similar nationwide dealer cuts a day earlier. Both automakers are scrambling to reorganize and stay alive in a severe recession that has devastated sales of cars and trucks.
Columbia dealership Albert Motors, which sells Buick and GMC models, is still waiting to hear from GM. General Manager Kevin Towns said he has not yet heard anything about the fate of his dealership and other dealers in the area he had talked to are also waiting for word from GM. He called GM's announcement a "non-event" at this point.
Managers at Columbia dealership Bob McCosh Chevrolet were unavailable for comment, but an employee said that the dealership received a phone call from GM this morning that indicated it would remain open.
Saturn of Columbia will be unaffected by the announcement because of GM's plans to sell the brand, sales manager Lee Kehl said. He added that the dealership plans to remain open.
The problem of too many dealers
While GM doesn't own the dealers, its network is too big, causing dealers to compete with each other and giving shoppers too much leverage to talk down prices and hurt the company's future sales.
"Too many dealers, in actuality, are a problem," Mark LaNeve, GM's vice president of North American sales and marketing, said in a conference call with reporters.
GM declined to reveal which dealers will be eliminated and left it up to franchise owners to report the decision to customers.
The cuts are part of a larger GM plan to drop 2,600, or nearly 42 percent of its 6,200 dealerships as the automaker tries to restructure outside of bankruptcy court and become profitable again. Thousands of jobs will likely be lost and governments will lose untold dollars in tax revenue as dealerships are forced to close.
Besides the 1,100 dealership cuts, the company will provide updates to about 470 Saturn, Hummer and Saab dealerships on the status of those brands, which it plans to sell.
More cuts to come
Friday's cuts will not be the last. GM said it expects to lose more dealers through attrition. Ultimately, about 90 percent of the remaining dealerships will stay with GM, the company said.
FedEx letters bearing the bad news began arriving Friday morning at GM franchises around the U.S. The letters state that dealers were judged on sales, customer service scores, location, condition of facilities and other criteria.
Both Chrysler and GM say they are cutting the number of dealers because they have too many outlets that are too close to each other, and the competition drives down prices. But as the ranks of dealers thin and competition decreases, that likely will mean higher prices for car and truck buyers.
As GM and Chrysler lost market share to Japanese and other overseas brands, the automakers, as well as Ford Motor Co., ended up with too many dealerships. Many are barely getting by and can't afford to upgrade their facilities or hire the best personnel to compete with the Japanese, who have far fewer dealerships.
With fewer dealers, consumers won't see as much competition, said Aaron Bragman, an automotive industry analyst with the consulting firm IHS Global Insight.
Trying to avoid cutthroat dealing
"No longer will people be able to shop between three or four dealers within 15 minutes of each other for the best cutthroat price," he said.
GM knows it will lose sales in the short-term, but over the long haul, fewer dealers will mean higher per-vehicle profits, Bragman said.
"As the dealers go, so goes the company in terms of financial health," he said.
In the 1980s, GM, Chrysler and Ford controlled more than 75 percent of U.S. sales, but that dropped to 48 percent last year. GM alone held nearly 51 percent of the market in 1962, but only 22 percent last year.
Bragman said GM likely will go into bankruptcy protection on June 1, but it's starting to negotiate deals ahead of the filing to speed up the process.
"GM has been ... acting as if they are negotiating a prepackaged bankruptcy," he said.
Associated Press writer Ken Thomas in Washington contributed to this report.