Page last updated at 16:36 GMT, Sunday, 17 May 2009 17:36 UK

GM to close up to 1,100 dealers

Cars at a GM dealership in California
GM has suffered a massive slump in sales during the economic downturn

General Motors (GM) has announced plans to close up to 1,100 of its dealerships in the US as it desperately tries to cut costs and stave off bankruptcy.

It also plans to cut ties with another 470 Saturn, Hummer and Saab dealers.

Closures announced today represent one quarter of the dealership network. GM plans to cut the total number of dealers by 42% by the end of 2010.

On Thursday, rival Chrysler said it would be closing 789 US dealers as part of a massive restructuring programme.

Almost all parts of GM, including the dealer body, must get smaller and more efficient
Mark LaNeve, vice president of North American sales, GM

GM is also in negotiations with unions to reduce wage costs.

Meanwhile, GM and the Canadian auto workers union are continuing to negotiate through Sunday, even though a government deadline had passed.

The union said "progress" had been made on key issues, though it insisted there was "no way" it would make the kind of concessions GM was asking for.

The province of Ontario had given the carmaker and the union until 15 May to renegotiate their labour contracts, a key condition of receiving up to C$3bn ($2.55bn) of bail-out money.

Cutting costs

The carmaker said the 1,100 "underperforming and very small sales volume US dealers...will be advised that GM does not see them as part of its dealer network on a long-term basis."

"It is obvious that almost all parts of GM, including the dealer body, must get smaller and more efficient," explained Mark LaNeve, vice president of North American sales for the carmaker.

GM currently has 6,246 dealers in the US and plans to cut the number to 3,605 by the end of next year.

The car firm says the move will reduce costs, but others argue that dealerships, as franchises, are not a cost to the company and generate much needed revenue.

Mr LaNeve said many dealers were selling 35 or fewer vehicles annually.

But there are concerns that the closures will flood the market with cut-price cars, pushing prices down.

"A concern of all dealers would be if the market value of vehicles were to decline because terminated dealers would be desperate to sell," said Jim Eagan at consultancy Plante & Moran in Michigan.

Cutting costs

GM is facing a deadline of 1 June to agree reorganisation plans with the US government or face bankruptcy.

Earlier this week, the company's new chief executive Fritz Henderson said going into bankruptcy protection was looking more likely.

GM had already warned it would probably need to enter protection if it could not get additional funding from the government.

It has already taken billions of dollars in emergency state aid in a desperate attempt to stay afloat in the face of plummeting sales.

Indeed, closing dealerships is just the latest in a long line of cost cutting measures.

Last month, the carmaker confirmed it would be cutting 21,000 jobs worldwide and shutting a number of factories in an effort to stay in business.

GM is also selling its Hummer and Saturn brands and scrapping Pontiac entirely.

And it is in talks to sell its GM Europe business, which comprises Opel, Vauxhall and Saab.

Shares in the car company ended 6 cents, or 5.2% lower at $1.09.

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