May 15 (Bloomberg) -- General Motors Corp. is sending termination notices today to 1,100 U.S. dealers with about $2.5 billion in unsold vehicles as the automaker starts shrinking its retail network, a person familiar with the matter said.
The dealers hold about 120,000 autos of various brands, said the person, who asked not to be identified because GM hasn’t announced details yet. Mark LaNeve, GM’s North American sales chief, is set to brief reporters at noon New York time.
The closings are GM’s first step toward paring U.S. dealers to 3,600 from 6,200 by the end of next year as it faces a probable bankruptcy by a June 1 deadline. With fewer outlets, the survivors each may be able to sell more cars at higher prices, boosting profit, the person said.
“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, a partner at consulting firm Plante & Moran in Southfield, Michigan.
Eagan said he hoped that GM would force the remaining franchisees to purchase inventory from stores being closed. Bankrupt Chrysler LLC took similar steps when it announced the shutdown of 789 dealerships yesterday.
Peter Ternes, a GM spokesman, declined to comment about the company’s plans. CNBC reported that GM’s letter to terminated dealers says the automaker’s cuts aren’t final yet, without saying where it got its information.
‘Emotional Day’
“It’s quite an emotional day,” said Wyman Williams, 61, who was waiting to learn whether his Williams Motors in Commerce, Texas, is on the closings list. “We’ve been here 40 years and what happens today is really important.”
He said he filed for Chapter 11 protection on April 1 for his Chevrolet-Pontiac-Buick store. “It was a necessity, but it worked out as a defensive move,” Williams said. “There’s a judge between GM and me.”
GM fell 1 cent to $1.14 at 11:08 a.m. in New York Stock Exchange composite trading. The shares have tumbled 95 percent in the past year.
GM is hoping for an orderly wind-down of the affected dealers over the next year or so, the person said, meaning they would close when their inventory is gone.
Dropping Brands
Today’s shutdowns are in addition to the approximately 500 dealers being shed as GM disposes of its Hummer, Saturn and Saab brands and drops Pontiac. GM has said it expects some dealers to leave voluntarily.
In contrast to Chrysler, which waited until it filed bankruptcy to cancel dealerships, GM is taking steps to reduce its retail network now, saying it still hopes to avoid having to restructure in court. Still, Chief Executive Officer Fritz Henderson said yesterday that bankruptcy is “probable.”
GM is trying to shave operating costs and shrink debt and union-retiree obligations by $44 billion. The company is surviving on $15.4 billion in U.S. government loans.
GM’s 8.375 percent bonds due in July 2033 fell 0.3 cent yesterday to 4.5 cents on the dollar, a record low, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. The yield was 175 percent. The bonds traded at 74.4 cents on the dollar a year ago.
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