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GM Drops Ax On 1,100 Dealerships

Automaker Not Renewing Franchises; Company Also Says Bankruptcy Likely Without Bond Deal

General Motors began notifying 1,100 dealerships Friday that their franchises would not be renewed as the company also revealed it likely would sell most of its assets to a new company and liquidate the rest if it has to seek bankruptcy protection.

Dealers were to find out either by telephone or FedEx letters.

The move comes a day after Chrysler LLC told 789 of the company's roughly 3,200 dealers across the country that they would be shutting their doors.

GM spokeswoman Susan Garontakos said the company will not make public a list of dealers to be cut, leaving the decision to release information to individual business owners.

The dealerships notified will have until October 2010 to close out their businesses, reports CBS News correspondent Jeff Gilbert.

Those dealers, which the company considers under-performing, will eventually be joined by dealers of brands GM is shedding. Stand-alone Pontiac dealers will be phased out while sellers of Saabs, Saturns and Hummers will have to wait to find out if their brands have a future.

The company has scheduled a conference call for noon Friday to explain its dealer reduction strategy.

The GM dealer cuts are likely to have a much greater impact than Chrysler's. While many Chrysler dealers also sell other brands and will stay open after losing their franchises, a large number of GM dealers sell only GM vehicles. So if their franchises are revoked, they run a greater risk of closing for good.

In both cases, the cuts will cost thousands of jobs, create holes in local tax bases, eliminate community pillars and create economic ripple effects across the country.

Chrysler is operating under bankruptcy protection, so it is likely to have an easier time tearing up its franchise agreements with its dealers than GM. A hearing is scheduled for June 3 in U.S. Bankruptcy Court in New York for the judge to determine whether to approve Chrysler's motion to fire its dealers.

Chrysler executives said Thursday the company is trying to preserve its best-performing dealers and eliminate ones with the weakest sales. More than half of the dealerships being eliminated sell less than 100 vehicles per year, they said, and account for 14 percent of U.S. sales.

Chrysler has received $4 billion in government aid, while GM has received $15.4 billion. GM is continuing to restructure out of court and faces a government-imposed deadline of May 31 for doing so. Several difficult hurdles remain, and many experts say that it is all but inevitable that it will follow Chrysler into bankruptcy.

GM disclosed Thursday the tentative plans for bankruptcy in a filing with the Securities and Exchange Commission. It has said bankruptcy is possible if it doesn't get enough takers on an offer to swap $27 billion in bond debt for stock.

The automaker also says it could seek court approval of its reorganization plan even if creditors vote against it.

To remake itself outside of court, GM must persuade its bondholders to swap $27 billion in debt for 10 percent of its risky stock. In addition, it must work out deals with its union, announce factory closures, cut or sell brands and shutter dealers.

Swapping its bond debt for equity may be its most difficult task. The company is trying to get 90 percent of its bondholders on board for the so-called debt-for-equity swap.

GM offered last month to give bondholders 225 shares for every $1,000 worth of bonds. The company would issue 62 billion new shares and then do a 100-for-1 reverse stock split.

Bondholders would end up with 10 percent of the company's shares under the offer, which expires May 26. But a committee representing the bondholders has counteroffered seeking a 58 percent ownership stake, saying it unfairly favors the government and the United Auto Workers union. They have counteroffered seeking a 58 percent ownership stake, which the automaker in turn rejected.

Shares of GM closed Thursday at $1.15.

European Dealers Try To Save GM Opel

Dealers for General Motors Corp.'s Opel unit hope to help save the European auto maker and secure a minority stake by investing up to $680 million, their association said Friday.

Representatives of the European Opel Dealer Association from 25 countries met in Vienna to endorse the plan, originally floated in March. They hope to secure a seat on Opel's supervisory board with their proposal.

The plan foresees that, over three years, Opel and Vauxhall dealers would put $204 into a fund for each new car sold.

It was unclear how large the resulting stake might be. Euroda's deputy chairman, Albert Still, said a 10-15 percent range looks likely, with the realistic maximum at 20 percent.

Euroda chairman Jaap Timmer said in a telephone conference call that "we still have to fill in a lot of details" on how the plan might work. If a major investor wants money up front, "we will have to negotiate that," he said.

Timmer said the dealers hope to start talks next week with GM, Opel and European governments, and also would like to talk with potential major investors to determine whether they are interested.

Italy's Fiat SpA wants to make GM Europe, including Opel, part of a global powerhouse also including Chrysler LLC.

As a possible alternative, Canadian auto parts maker Magna International has said it is in talks about options for Opel that might include taking a minority stake, but otherwise has given few details.

The German government expects both of those suitors to give more details of their plans by May 20.

Euroda's Still said every country's dealer association endorsed pursuing the plan on Friday apart from Finland's representatives, who abstained.

"To what extent our ideas can be fulfilled of course depends on negotiations and to what extents investors want us in a new Opel-Vauxhall company," he said.

"It could be historic that, for the first time, dealers participate in their manufacturer in a noteworthy extent and so gain a certain degree of influence on the future policy of the producer," Still added.

Berlin is keen to ensure the future of Opel - which employs some 25,000 people in Germany, nearly half GM Europe's total work force.

Opel spokesman Andreas Kroemer said the company welcomes "the dealers' dedication to Opel and strong bond with the brand." He did not comment further on the dealers' plan.

(© 2009 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)