GM maps strategy as Chrysler cuts dealers

By Kevin Krolicki and Poornima Gupta

DETROIT (Reuters) - General Motors Corp <GM.N> said on Thursday night it would most likely pursue the same legal strategy as Chrysler if it spirals into bankruptcy, while Chrysler unveiled details for slashing its dealer network.

Rattling the industry further, the Financial Times reported on its website that Toyota Motor Co <7203.T> is planning one of the most drastic management shakeups in its 70-year history next month when Akio Toyoda, grandson of the company's founder, takes over as chief executive.

Toyota will replace 40 percent of its senior managers and is said to be preparing a sweeping reorganization of its North American business that would unify sales and manufacturing arms, the report said.

In a bright spot, Ford Motor Co <F.N>, the only Detroit automaker not taking government bailout funds or dogged by bankruptcy or bankruptcy expectations, assured shareholders it is on track to at least break even in 2011, sending shares higher.

The GM disclosure, in a regulatory filing, marked the first time the automaker has said it would most likely follow the same legal strategy Chrysler is using under federal oversight to slash debt and restructure dealerships.

GM faces a June 1 deadline to restructure its bond debt and reach a sweeping deal with the United Auto Workers. The company restated in its filing with the Securities and Exchange Commission that it expects to seek Chapter 11 if negotiations with bondholders fall short.

CHRYSLER CUTTING DEALERSHIPS

Chrysler said it would terminate business with 789 of its 3,181 dealerships as of June 9, a move that could cost up to 40,000 jobs, according to the leading dealer trade group. Dealers in Pennsylvania, Texas, Ohio, Illinois and Michigan -- where Chrysler is based -- would be hit hardest.

"The bankruptcy process that we are in allows us a once-in-a-lifetime chance to achieve a right-sized dealer body," Chrysler Vice Chairman Jim Press said on a conference call. "We do not have enough production or sales to keep all the dealers alive or prosperous.

Chrysler sought permission from a U.S. bankruptcy court in New York to terminate franchise agreements with the dealers. Fifty percent of its U.S. dealers account for 90 percent of sales, according to court documents.

GM also plans to announce up to 2,000 dealer terminations as early as this week, sources have told Reuters.

Chrysler and GM face pressure to bring large sales networks in line with those run by more successful automakers. Toyota has 1,200 dealers in the United States.

Chrysler dealers reacted with a mix of anger and sadness, but most, even those surprised by the news, entertained little hope they could stop Chrysler.

Mike Jackson, chief executive of AutoNation Inc <AN.N>, the largest public dealership group, said Chrysler's dealer consolidation plan was long overdue but noted it could put pressure on vehicle prices in the short term.

"This is an unprecedented event in the midst of an unprecedented economic situation," Jackson said. "I think it's a relatively short-term painful event."

U.S. Rep. Gary Peters, whose Michigan district includes Chrysler headquarters, and other lawmakers from the state said they would consider whether legislation may be needed to provide a softer landing for outgoing dealers.

The National Automobile Dealers Association has spent this week urging Congress and the Obama administration's autos task force overseeing industry restructuring to slow the process.

Chrysler's move to cut dealers will help it cement an alliance with Fiat <FIA.MI>. U.S. antitrust officials said on Thursday the plan poses no competitive issues.

Separately, the German government said it wants Fiat and Austrian-Canadian parts supplier Magna <MGa.TO> to present proposals for partnering with GM's European unit, Opel, within a week.

FORD OPTIMISTIC

In Wilmington, Delaware, Ford executives told shareholders at the company's annual meeting that restructuring is on track to be at or above break-even in 2011 excluding special items.

Ford shareholders also approved a funding plan for a healthcare trust for union retirees and rejected a challenge to the share voting structure that gives the Ford family control of the automaker.

Ford shares rose 4 percent to $5.16 on the New York Stock Exchange, while GM shares fell 4.9 percent to $1.15.

The entire industry is dependent on a sharp reversal in plunging U.S. sales.

Consulting firm A.T. Kearney said in a report on Thursday that domestic sales are expected to drop 24 percent to 10 million units this year. Industrywide sales were 13.2 million in 2008.

In Chattanooga, Tennessee, Volkswagen <VOWG.DE> executives said on Thursday they see no recovery in demand for U.S. vehicles before the end of the year with industrywide sales at risk of dropping below 10 million units.

(Additional reporting by David Bailey in Wilmington, Delaware, Soyoung Kim in Detroit, James Kelleher and Kyle Peterson in Chicago; Matthew Bigg in Chattanooga, Tenn; Diane Bartz, David Lawder and John Crawley in Washington; Sabine Siebold in Berlin and David Holmes in London; Editing by Gerald E. McCormick, Matthew Lewis and Steve Orlofsky)

Article Published: 14/05/2009