For General Motors Corp., experts say that the task at hand is so difficult and that a Chapter 11 bankruptcy filing is inevitable.
To restructure out of court, GM needs bondholders to swap $27 billion in debt for 10 percent of its highly risky stock, close factories, sell off brands and do massive lay-offs, all in about two weeks.
G.M. just posted a 1st quarter net loss of $6 Billion resulting to a $9.66 loss per share. The task of restructuring before the June 1 deadline is “large”, in the words of GM’s CEO Fritz Henderson.
A day after Chrysler LLC, now in bankruptcy protection announced that they will not renew a quarter of their dealerships contracts, G.M. announced that 1,100 US dealers franchise agreements will not be renewed. The elimination will be based on sales, customer service scores, location, condition of facilities and other criteria. While the targeted dealers represent about 20 percent of GM's total, they make only 7 percent of its sales. Dealers received the news by FedEx letters starting Friday morning.
The GM dealerships will be eliminated when their contracts end late next year. Thereafter in 2010 another 10% will be eliminated. Some of the dealerships affected like the Cleveland-area Chevrolet dealer, a family business owned by Alan Bigelow have been in business for 98 years. Many of the dealership's 45 employees have been there for 30 years or more. Like many of the dealers affected, they vow to fight, first through a 30-day company appeal process, then possibly in court.
While GM doesn't own the dealers, the company says its network is too big, causing dealers to compete with each other and giving shoppers too much leverage to talk down prices and hurt future sales.
US automakers have been losing market share to foreign companies for decades.
The cuts will allow the surviving dealers to expand the size of their markets, so they have a better chance of staying healthy and attracting private investment, said Mark LaNeve, GM's North American vice president of sales and marketing.
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