Thursday, May 14, 2009

GM maps legal strategy, Chrysler cuts dealerships

General Motors Corp said on Thursday night it would most likely pursue the same legal strategy as Chrysler if it spirals into bankruptcy, while Chrysler unveiled details for slashing its dealer network.

Rattling the industry further, the Financial Times reported on its website that Toyota Motor Co is planning one of the most drastic management shakeups in its 70-year history next month when Akio Toyoda, grandson of the company's founder, takes over as chief executive. Toyota will replace 40 percent of its senior managers and is said to be preparing a sweeping reorganization of its North American business that would unify sales and manufacturing arms, the report said.

In a bright spot, Ford Motor Co, the only Detroit automaker not taking government bailout funds or dogged by bankruptcy or bankruptcy expectations, assured shareholders it is on track to at least break even in 2011, sending shares higher.

The GM disclosure, in a regulatory filing, marked the first time the automaker has said it would most likely follow the same legal strategy Chrysler is using under federal oversight to slash debt and restructure dealerships. GM faces a June 1 deadline to restructure its bond debt and reach a sweeping deal with the United Auto Workers. The company restated in its filing with the Securities and Exchange Commission that it expects to seek Chapter 11 if negotiations with bondholders fall short.


Chrysler said it would terminate business with 789 of its 3,181 dealerships as of June 9, a move that could cost up to 40,000 jobs, according to the leading dealer trade group. Dealers in Pennsylvania, Texas, Ohio, Illinois and Michigan -- where Chrysler is based -- would be hit hardest.

"The bankruptcy process that we are in allows us a once-in-a-lifetime chance to achieve a right-sized dealer body," Chrysler Vice Chairman Jim Press said on a conference call. "We do not have enough production or sales to keep all the dealers alive or prosperous.

Chrysler sought permission from a U.S. bankruptcy court in New York to terminate franchise agreements with the dealers. Fifty percent of its U.S. dealers account for 90 percent of sales, according to court documents. GM also plans to announce up to 2,000 dealer terminations as early as this week, sources have told Reuters.

Chrysler and GM face pressure to bring large sales networks in line with those run by more successful automakers. Toyota has 1,200 dealers in the United States.
Chrysler dealers reacted with a mix of anger and sadness, but most, even those surprised by the news, entertained little hope they could stop Chrysler.

Mike Jackson, chief executive of AutoNation Inc, the largest public dealership group, said Chrysler's dealer consolidation plan was long overdue but noted it could put pressure on vehicle prices in the short term. Two family-owned Chrysler dealers in New Jersey are forced to close as the troubled car giant makes cuts.

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