GM dealers may be hurt even worse in Chapter 11
May 16th 2009 7:00AM
Updated Dec 4th 2009 11:37AM
If General Motors (GM) files for Chapter 11, the 1,100 dealers that it has cut could be hurt even worse than they already have been. Many have contracts with GM that extend well into next year. In a bankruptcy, those arrangements might be voided.
According to Bloomberg, "If GM files bankruptcy, the landscape will change to reflect what Chrysler is doing with its dealer body," said Billy Donley, a franchise and distribution attorney for Baker & Hostetler LLP in Houston."
Mass closings of the dealers would be bad for the economy. Each dealer being shut probably employs between 40 and 80 people. Instead of the staff members who are being fired moving to the unemployment line by stages as dealer shut, the layoffs could happen quickly and simultaneously across a large number of the firms if GM goes bankrupt
Each dealer has suppliers and vendors. The ripple effect of the GM dealer closings could easily mean that well over 100,000 people will lose there jobs. That will not do much to help the administration's goal of adding or saving 3.5 million jobs by the end of next year. Ironically, the government will be a catalyst for GM going into court.
Douglas A. McIntyre is an editor at 24/7 Wall St.