Dealers prepare for worst if GM files Chapter 11 bankruptcy
DETROIT — Experts are advising car dealers to start preparing themselves
for the very real possibility that General Motors (GM) files for
If the automaker does file, any money owed to dealers for warranty work
they've done on cars or for rebates they've already paid to buyers could
just disappear, warns Scott Silverman, an attorney.
Many dealers are owed hundreds of thousands of dollars from
manufacturers at any given time, says Silverman, partner at law firm
McCarter & English who specializes in representing dealers. He says he's
been prepping Massachusetts-area dealers for a GM Chapter 11 filing with
seminars informing them of their rights and telling them to prepare for
A bigger issue for dealers down the road would be if a bankruptcy court
let GM cancel their franchise agreements. GM already has said it needs
fewer dealers and also said it's not going to buy out dealers as it did
at huge cost when it closed Oldsmobile. But dealers first must keep from
going under because of cash flow problems.
"They are going to have to plan to operate without any expectation of
when and if that money is going to come in the door," Silverman says.
"It's one issue of bankruptcy, but it's usually a jaw-dropping one for
dealers who are already paper thin in the way they're dealing with
Last week, GM CEO Fritz Henderson called a filing "probable." GM has
been operating on a $13.4 billion lifeline from the government and has
said that without more loans it could be forced into a bankruptcy.
President Obama has said it must do significantly more to cut its costs
by June 1 to get more aid.
All the bad GM news isn't helping dealers already suffering a massive
sales decline. Jim Snell, a Dallas-area dealer of Buick, Pontiac and GMC
vehicles, says he thinks his sales may have bottomed.
"They're not really picking up, and they're not getting any worse," he
says. "If GM could get off the front page of the newspaper and the lead
story on every TV news program you see, I think that would help."
For Buick-Pontiac-GMC dealer Cari Yturri in Great Falls, Mont., the bad
news has forced her to have a backup plan. "You have to have a
contingency plan if you're not going to get paid right away. You have to
have a good relationship with your bank, too."
Yturri says she's trying to rely on used car sales and repairs for a
significant part of her revenue, and she's reassuring customers those
sides of her business won't go away. She's optimistic GM will continue
to make cars, even while in bankruptcy court.
"GM is going to do whatever they need to survive," she says. "I believe
there is always going to be a good GM vehicle out there for us to sell."