Automotive News
http://www.autonews.com/article/20090601/ANA02/906019914/1018
http://www.autonews.com/article/20090601/ANA02/906019914/1018
Jamie LaReau
Automotive News
June 1, 2009 - 6:29 pm ET
DETROIT -- General Motors is requiring all surviving dealers to sign a "participation agreement" asking them to comply with any dealership upgrades that the company imposes in bankruptcy.
GM also will require dealers who got franchise termination letters to sign a "wind-down" agreement. That will provide money for them to phase out their business over the next 17 months as their franchises expire.
Surviving and terminated dealers have until mid-June to sign the agreements. If they refuse to sign, GM will yank their franchises, Mark LaNeve, vice president of vehicle sales, service and marketing, said today in an interview with Automotive News.
"They get put into the old company and get a fairly quick termination, like the Chrysler dealers did," LaNeve said. "Their sales and service agreement will be rejected and put into the old company."
LaNeve's explanation dampens speculation that GM might employ bankruptcy to terminate dealers quickly, rather than over the 17-month period. Instead, GM will use the threat of termination to get surviving retailers to accept new store guidelines.
Old GM, new GM
Now that it's in Chapter 11 bankruptcy, GM plans to split itself into old and new companies.
The old company will consist of debts and other liabilities that GM wants to dump. The terminated dealers will end up in the old GM.
The new company will include Chevrolet, Cadillac, Buick and GMC, plus other useful assets. Surviving dealers will stay with the new GM when it emerges from bankruptcy.
GM already has informed 1,124 dealerships that they won't have their franchises renewed when the agreement expires on Oct. 31, 2010. Starting this week, an additional 200 dealers will get similar termination notices.
GM is sending letters via Federal Express tonight to all 5,969 dealerships. Most of them will inform dealers whether they will retain their franchises and what changes they must make to retain their stores. Some dealers will be asked to remove competing franchises from their GM showrooms. Others might be asked to upgrade their stores, and still others will be told they do not need to make any changes.
The 1,124 dealerships who received termination notices in mid-May will have their phase-out procedures explained.
'Significant' demands
GM expects to put "significant" demands on surviving dealers. "We expect them to perform well on customer satisfaction scores and sales, have their facilities up to speed and not have any non-GM brands in their showrooms," LaNeve said.
Initially, GM will not make specific demands to improve the property, he said. "We're not right away demanding new facilities," LaNeve said. "We're not using this as a threat in this kind of market to get dealers to… spend money they can't afford to spend."
Some dealers will be asked to sign a wind-down agreement to give up one franchise, then sign a participation agreement to cover their other franchises. This group might include 2,000 dealers who own Pontiac as part of another channel.
The dealers will have to sign a wind-down agreement to receive financial assistance for their unsold inventory, parts and signs. GM will not pay for the dealer's "blue sky" value -- a reference to the value of a dealership before GM terminated it.
In return, dealers agree not to sue GM before their franchise agreement expires in 2010.
"Some will be paid upfront," LaNeve said. "The majority will be paid when they actually close their doors."
