By David Bailey and Kevin Krolicki
DETROIT (Reuters) - General Motors <GM.N> plans to drop about 1,600 U.S. dealers as it struggles to slash billions of dollars in operating costs and debt ahead of an anticipated bankruptcy filing by the end of the month.
Taken together with a similar announcement by bankrupt Chrysler a day earlier, over 2,300 U.S. auto retailers have been put on notice that they are being eliminated by the two embattled automakers.
The unprecedented closures taken under the oversight of the Obama administration's autos task force put over 100,000 jobs at risk across the United States and show the spreading economic pain from the collapse of the two Detroit-based automakers.
GM confirmed it planned to eliminate about 1,100 dealerships on the grounds that they are less profitable and weakly capitalised by letting their franchise agreements expire between now and the end of 2010.
The automaker expects to drop another 470 dealerships from cutting its Saab, Hummer and Saturn brands, said GM spokesman John McDonald. After merging remaining dealerships, the plan is for GM to cut about 2,600 showrooms, or 40 percent of its U.S. retail network.
"We are telling them basically that you are not going to fit into the picture long term, but between now and then we will help wind the business down the best way individually with each dealer," GM spokesman John McDonald said.
GM dealers affected by the closure plans received letters by express mail on Friday morning informing them that the automaker did not see how it could have a "productive business relationship" after 2010.
Other GM retailers who did not receive the express mail learned that they had been spared.
"It's kind of like 'Dancing with the Stars'," said Richard Genthe, a Chevrolet dealer in Southgate, Michigan. "You're safe. You get to go ahead into next week."
The elimination of U.S. dealerships and the jobs that go with them, was an anticipated, but painful, part of the U.S. auto industry shake-up following the collapse in U.S. auto sales to less than 10 million vehicles a year from more than 16 million just two years ago.
GM shares were slightly lower on Friday morning at $1.13. The shares traded as high as $21.37 last May.
CHRYSLER CUTS
Chrysler, which filed for bankruptcy on April 30, plans to terminate 789 of its 3,181 dealerships by early June, a move that could cost up to 40,000 jobs, according to the leading dealer trade group.
Dealers in Pennsylvania, Texas, Ohio, Illinois and in Michigan -- where Chrysler is based -- would be hit hardest.
The automaker said it would not disclose the identity of individual dealers. Chrysler disclosed in court documents on Thursday the identities of nearly 800 dealerships it wants to terminate under the court process.
GM remains out of bankruptcy but has said that a filing is likely because of its need to cut $27 billion (17.7 billion pounds) in bond debt and other costs.
Chrysler on Friday sought to ease some of the industry-wide jitters when Chief Executive Robert Nardelli said the company would begin paying its suppliers for invoices that had been sent prior to its filing for Chapter 11 protection.
Nardelli also said the company was moving ahead with plans to establish contractual relationships between the new Chrysler/Fiat company and suppliers.
The dealer cuts were greeted with surprise in some quarters, anger and sadness in others.
Mark Calisi, 47, who owns Eagle Auto-Mall in Riverhead, New York, said he was "devastated" to learn that his dealership would be closed. He said Chrysler accounts for a third of his business, which also sells Volvo, Mazda and Kia, and that on Thursday he had to sack 30 of his 100 employees.
"I have been with Chrysler for 13 years and my father was with Chrysler for 30 years," he said. "No matter which way you cut the cake it's devastating."
UNION TALKS CONTINUE
While GM continues to shrink its operations, the company continues to talk with its largest union, the United Auto Workers, about a deal to slash employee costs.
Under the direction of the U.S. Treasury, GM is said to be close to a deal with the UAW that would cut its hourly labour costs by more than $1 billion a year, the Wall Street Journal said, citing people familiar with the matter.
GM expects to halve its remaining cash outlays for retiree health costs to about $10 billion, and supplement that contribution with a 39 percent equity stake in the reorganized company, the people told the paper.