An April 13, 2009 story in the Los Angeles Times cited the reduction of automotive dealerships as one of the measures needed to lessen the industry's financial woes. Industry leaders agree the big three have too many dealerships, which hurts per-dealership profits. The story quoted Venable partner Aaron Jacoby, head of the automotive practice group in the Los Angeles office.
According to the article, roughly 1,000 dealerships closed nationwide last year - 680 of which were under GM or Chrysler flags. The national dealers group expects an additional 900 dealerships to close by year-end.
GM and Chrysler have a combined 9500 locations, which are not owned by the companies, but franchised by businesses that sell the vehicles at wholesale prices, mark up for public sale and keep the difference. The automakers have contracts with these franchises which can be difficult to break. Short on cash, automakers would appear to have few bargaining chips.
Manufacturers could use bankruptcy to abrogate franchise agreements, but that is considered the "nuclear option." Aaron Jacoby said franchise laws were so strong that only a bankruptcy judge could break them. "If they go into bankruptcy, you just break the contracts and say, 'You're done,'" he said.