Minnesota GM dealers brace for bankruptcy

On Wednesday, GM's bondholder rejected a deal that would have helped the company reorganize outside of Chapter 11 protection.

A GM bankruptcy would be the largest by a U.S. industrial company, and the second for a Big Three automaker following Chrysler's filing at the end of April.

Despite that, Chrysler is doing better -- or, at least not as badly -- as the rest of the industry. Chrysler's retail car sales between May 1 and 24th are down 30 percent compared to the same period last year, whereas the overall industry is down 33 percent.

But Scott Lambert of the Minnesota Automobile Dealers Association is not ready to wave off bankruptcy as inconsequential to sales. He says Chrysler's bankruptcy seems to be driving down business for all dealers in the state -- even those selling other brands.

"It's just anecdotal, I don't have numbers for May yet, but people are telling me they're having their worst month ever in the history of their dealerships," he said. "And I just think it's because Chrysler went into bankruptcy. I don't know any other reason to explain it."

Lambert doesn't think a GM bankruptcy would choke sales more dramatically than Chrysler's, but he expects it would still keep buyers away from car lots.

Lambert is also concerned about GM's plans to sever ties with 30 of its nearly 140 dealerships in Minnesota. He expects that will cost the state 1,300 jobs. That's on top of the 800 or so job losses he projects for Chrysler's 19 Minnesota store closings. Lambert had previously pegged the Chrysler job losses at closer to 250.

A couple of weeks ago, GM told dealers on its chopping block that they'll have until October 2010 to wind down their business. But bankruptcy could likely push that date up.

Steve Laschinski is a GM dealer whose contract will not get renewed next year. His family owns Grand Marais Motors, located, as he says, "kinda up here at the end of the road."

A bankruptcy will "probably make it worse for us, I would imagine, because if they go into bankruptcy, they may do like Chrysler where they just chop you off right there," he said.

Laschinski thinks GM is shooting itself in the foot by shutting him down, given how far customers would have to travel to get warranty work done at another dealer.

"We're out here 80 miles to the nearest GM store," he said. "Quite a drive, you know?"

Laschinski says his sales numbers are down about a third -- roughly in line with the overall industry. But he thinks whoever made the decision at GM to shut him down had unrealistic expectations for his area.

"They've got some guy in Detroit looking at our numbers, and he don't know Grand Marais from Chicago, and our numbers aren't as big," he said.

Laschinski will try to stay open even after GM cuts him off by running his service business and selling used cars. He has an opportunity to contest his closing by June 1st, and he's gathering letters of support from customers.

Rob Kugler, a bankruptcy attorney with Leonard, Street and Deinard, says it's not clear if those dealers on the chopping block will do any worse if GM files for bankruptcy. Kugler is getting calls from some of those dealers, and says they'll at least get to make their case before an independent bankruptcy judge, who would have to approve any decision.

"At the end of the day, there might not be dramatic differences between what GM has proposed to do and what GM is allowed to do, but there might be some differences," he said. "And so from that perspective, it's not a complete black day for the dealers."

Kugler does think a bankrupt GM would likely close stores far earlier their original October 2010 target, and wonders why GM ever proposed that date.

"My personal speculation on it is that they were trying to appease politicians by approaching the whole process in a kinder and gentler way," he said. "At the time it made no sense, and it makes even less sense now in light of the very real prospect of the bankruptcy filing."

Gallery

Fullscreen SlideshowPrevious Slide

1 of 1

Next Slide