GM begins notifying dealers of closings

GM's action Friday comes just a day after crosstown rival Chrysler announced it will drop 789 of its roughly 3,200 dealerships. Both companies have too many dealerships for too few sales and are slashing costs as they restructure.

At Chicago's oldest dealership -- selling cars since before Chrysler existed -- owner Stanley Balzekas summoned his employees Thursday.

"They do not want us to be a Chrysler dealer anymore," Balzekas said. "It's very hard for me. The time has come."

The word arrived by parcel post, in cold corporate language that left his daughter Carole feeling betrayed.

"This type of letter is just a shame to send to somebody who has been in business for 90 years," she said.

It was the same sad scene at hundreds of other dealers across the country Thursday.

"My franchise was basically stolen from me, and it's gonna be given to a dealer down the street for free," said James Anderer, owner of Island Jeep Lindenhurst, N.Y. "I have 48 people here who are going to be unemployed."

"We didn't do anything wrong, but we're being punished," Anderer added. "Chrysler won't even take the cars back. So the 100 cars I have in inventory I have to retail out of them in the next couple of weeks, either throw them in a Dumpster or sell them for pennies on the dollar. & Chrysler got a bailout. I'm not asking for a bailout. I don't need a bailout. I run my business properly."

Bob Kaplan, of Dominion Dodge in Salem, Va., said: "You don't know what to feel. You feel like you put your life and soul into this and done it the best you can and worked as hard as you can, represented the brand very well."

The closing of the dealerships will be noticed in the communities they serve, especially the ones in small towns.

"The dealers are the biggest tax collectors, sales tax collectors, for communities. The dealers are some of the biggest charitable contributors of a community," said Pat Primm of the Akron Auto Dealers Association.

Chrysler and General Motors want to consolidate a vast network of dealerships left over from a bygone era, focusing instead on fewer and bigger dealers.

"Fewer, more profitable, dealerships is better than having thousands of smaller less profitable dealerships," said auto analyst John Casesa.

GM and Chrylser Dealers in Small Towns

Some of those smaller dealers play significant roles in their communities and losing them will leave big holes.

Bob McGuire owns a GM dealership Bordentown, N.J. He doesn't expect to have to close, but if he got such orders, he would "probably cry and then regroup and sit down with my wife and son and determine what corrective actions we can take to overtake this."

"I am not going to give up. I have made my life's work here," he said.

McGuire gives money to the local high school prom and sits on the board of directors of the local Marine Corps scholarship fund.

"When you eliminate 1,100 dealers in America, what you are actually doing is taking their entire work force and putting them out of work," he said. "I mean, there goes the mortgage payment. There goes the payment on the college education. There goes a family that is now at risk, looking for an income."

So what if you bought your car from one of the Chrysler or GM dealerships that's closing? Is your warranty still good?

Yes. But that doesn't mean your local dealer will be around to service your car. If you live in a metro area, there should be another dealer nearby to fix your car. But if you live in a rural area, getting that tune-up might now require a long drive.

The closings aren't all bad news. Those looking to buy a car, might find some bargains at dealerships who now have to quickly liquidate their inventory.

There is more news from GM today. Under the direction of the U.S. Treasury, the automaker is close to a deal with the United Auto Workers that would cut its hourly labor costs by more than $1 billion a year, the Wall Street Journal reported, citing people familiar with the discussions.

Labor costs have been one of the biggest factors in driving GM close to bankruptcy.

An agreement with the union could come early next week.

Chrysler is already in bankruptcy and its announcement to eliminate a quarter of its showrooms, some 789 dealerships was revealed in court documents filed Thursday.

Chrysler, which filed for Chapter 11 at the end of April to begin a merger with Italian automaker Fiat, told the bankruptcy court Thursday that its dealer network was inefficient, expensive and antiquated.

The network of 3,200 dealers currently operating across the country "substantially increases expenses and inefficiencies in the distribution system," the company said in a motion filed in the U.S Bankruptcy Court in New York.

Automakers Facing Bankruptcy

Pending approval by the court, the company plans to cut off underperforming dealerships by June 9.

The company said it targeted poor performing dealers, and those that sold a single brand -- Chrysler, Dodge or Jeep -- and those in areas, particularly cities, where dealers competed with one another. Though the company is losing 25 percent of its dealers, those dealers provided only 14 percent of sales volume, Jim Press, Chrysler's vice chairman and president, told reporters Thursday.

Chrysler, which took a $4.1 billion loan from the government, has seen a 46 percent drop in sales compared with the first four months of last year. It reported a $16.8 billion net loss for 2008.

"The bankruptcy process allows us a once in a lifetime chance to realign the dealership body," Press said. The company, he said, would have a "more profitable and powerful distribution going forward."

Chrysler for several years has been trying to consolidate its dealerships so all its brands are under one roof, but many dealers continue to just sell one brand.

Wade Walker, a Jeep dealer from Montpelier, Vt., whose family has been selling Chrysler-made cars since 1964, said news that he would have to close his dealership would cost him a quarter of his business and lead to layoffs.

Walker, like the other dealers, was notified by a letter sent by UPS Thursday morning that his business would be closed.

"I have been notified that I am one of the affected dealers, and I won't have a future with Chrysler," Walker told ABC News.

"I'm not happy. We've put so much into it. We've been a dealer since 1964. It hurts that they would do this after 45 years of dedicated service," Walker said. "I feel a little abandoned by them. I'm more worried about my employees and my customers.

Walker, who also sells Ford and Volkswagen vehicles, said his Jeep sales made up a quarter of his business. He said he would have to lay off workers and said he believes the company targeted his showroom because he shared his showroom with competing companies.

"We can't continue to employ these people," he said. "It was a profitable business for years. When you're off 40 percent from where you were four years ago and now you lose 25 percent of your business, it hurts."

Local Dealers Make Pleas to Congress

Walker was on Capitol Hill Wednesday, along with more than 100 other dealers, to convince lawmakers to stop the automaker from shuttering their stores.

In addition to the 789 planned closures, Chrysler has lost 400 dealers since early last year.

The U.S. Treasury Department said in a statement that the move to close dealerships was "one of several steps the company is taking to restructure to achieve financial viability."

In its statement, Treasury said it had no role in deciding which dealers would be shut down. The government said dealers, like autoworkers, had to make sacrifices to keep the industry viable.

"The sacrifices by the dealer community -- alongside those of autoworkers, suppliers, creditors and other Chrysler stakeholders -- are necessary for this company and the industry to succeed. & A stronger Chrysler, supported by an efficient and effective dealer network, will provide more stability for current employees and the prospect for future employment growth."