GM starts terminating about 1,100 dealer franchises

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GM closing dealerships

GM starts terminating about 1,100 dealer franchises - A day after Chrysler LLC moved to eliminate nearly 800 dealerships, General Motors Corp. on Friday told about 1,100 U.S. dealers their franchises will be terminated late next year.

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NEW YORK -- A day after , General Motors Corp. on Friday told about 1,100 U.S. dealers their franchises will be terminated late next year.

The cuts are part of a larger GM plan to slash 2,600 of its 6,200 dealerships as the automaker tries to restructure to become profitable again. The moves likely will cause the loss of thousands of jobs across the nation. Governments will lose thousands of dollars in tax revenue as dealerships are forced to close.

Both Chrysler and GM say they are cutting dealers because they have too many outlets that are too close to each other, and the competition drives down prices. But as the ranks of dealers thin and competition decreases, that likely will mean higher prices for car and truck buyers.

As GM and Chrysler lost market share to Japanese and other overseas brands, the automakers, as well as Ford Motor Co., ended up with too many dealerships. Many are barely getting by and can't afford to upgrade their facilities or hire the best personnel to compete with the Japanese, who have far fewer dealerships.

With fewer dealers, consumers won't see as much competition, said Aaron Bragman, an automotive industry analyst with the consulting firm IHS Global Insight.

"No longer will people be able to shop between three or four dealers within 15 minutes of each other for the best cutthroat price," he said.

GM knows it will lose sales in the short-term, but over the long haul, fewer dealers will mean higher per-vehicle profits, Bragman said.

"As the dealers go, so goes the company in terms of financial health," he said.

In the 1980s, GM, Chrysler and Ford controlled more than 75 percent of U.S. sales, but that dropped to 48 percent last year. GM alone held nearly 51 percent of the market in 1962, but only 22 percent last year.

Bragman said GM likely will go into bankruptcy protection on June 1, but it's starting to negotiate deals ahead of the filing to speed up the Chapter 11 process.

"GM has been ... acting as if they are negotiating a prepackaged bankruptcy," he said.

(Copyright 2009 by The Associated Press. All Rights Reserved.)