GM Generali

Generali (AQEU:GM)
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General Motors Corp. (GM) said Friday it has notified 1,100 dealers they will be phased out of business by October 2010 as part of plans to eliminate 40% of its stores by the end of next year.

GM also said Friday it will update 470 Saturn, Saab and Hummer dealers on the status of its efforts to offload those brands. The dealer reduction affects 2,369 stores.

GM's shares dropped 5.2% to $1.09 in recent trading amid a broad market downturn.

"It is imperative that a healthy, viable GM have a healthy, viable dealer body that can not only survive but prosper during cyclical downturns," GM sales chief Mark LaNeve said in a statement. "It is obvious that almost all parts of GM, including the dealer body, must get smaller and more efficient."

The cuts are part of GM's efforts to downsize as it faces a June 1 deadline from the Obama administration to restructure or file for bankruptcy.

Determined to avoid the huge costs involved with cutting Oldsmobile brand dealers earlier this decade, GM has said it will draw down dealer inventories and allow contracts to run out naturally.

The auto maker will not renew contracts of dealers who own stores GM thinks should close. Most of GM's contracts with dealers expire in October 2010.

GM said it wouldn't release the names of the dealers affected since they are independently owned businesses.

Thursday, Chrysler LLC said it would seek to immediately drop a quarter of the dealers from its retail network, or 789 stores, according to papers filed with the bankruptcy court overseeing its Chapter 11 case.

The auto maker needs to streamline the dealer network so that the company "can begin implementing efficiencies, marketing strategies, production plans and model changes" that will make the company more profitable, the auto maker's director of dealer operations, Peter M. Grady, said in a statement filed with the court.

-By Sharon Terlep; 248-204-5532; sharon.terlep@dowjones.com.