UPDATE 1-GM, Chrysler to cut up to 3,000 dealers -- sources
* GM to terminate up to 2,000 U.S. dealers
* Chrysler to drop up to 1,000 U.S. dealers
* Notices could go out as early as Thursday (Adds comments from dealers, Chrysler CEO letter, meetings in Washington, bylines)
DETROIT/WASHINGTON, May 13 (Reuters) - General Motors Corp (GM.N) and Chrysler aim to drop as many as 3,000 U.S. dealers and are expected to begin sending notifications as early as Thursday, three people briefed on the still developing plans said.
GM, facing a U.S. government-imposed deadline of June 1 to restructure or file for bankruptcy, is expected to send termination notices to up to 2,000 dealers -- a third of its roughly 6,000 U.S. dealers, the sources told Reuters.
Chrysler, which filed for bankruptcy on April 30, will also tell up to 1,000 of its 3,189 U.S. dealers it is terminating their franchise agreements, according to the sources who asked not to be identified because the controversial closure plans have not been yet announced.
The moves to shut down auto dealerships underscores how the economic pain caused by the downward spiral of both automakers -- now operating under U.S. government oversight -- is spreading beyond their home base in Detroit.
The development comes as dealer representatives have stepped up lobbying in Washington to try to slow down closures they estimate would cost 200,000 dealership jobs.
The involuntary terminations are also widely expected to prompt a legal challenge from dealers who are independent retail networks protected by state franchise laws.
Chrysler spokeswoman Kathy Graham said the automaker had not announced its dealership closure plans.
"We have not announced anything at this point," she said. "We are not done with our process at this point."
A GM spokesman was not immediately available for comment.
More than 100 members from the National Automobile Dealers Association, a group representing the country's 20,000 new car dealers, met members of the House of Representatives and Senate in Washington on Wednesday, asking them to intervene with the Obama administration's autos task force on planned reductions.
"A rapid cut of dealers is a bad idea," NADA Chairman John McEleney said in a statement.
McEleney said his organization does not oppose dealer consolidation, but believes the administration and the companies are moving too fast.
NADA leaders are scheduled to meet the U.S. auto task force on Thursday.
The task force, headed by former investment banker Steve Rattner, is driving the restructuring of both companies, which are planning to close plants, cut jobs and restructure dealer lineups to establish viability.
PLANS BEING FINALIZED
GM, which is operating with $15.4 billion of U.S. government loans, has to cut debt and operating costs and present a new restructuring plan to officials by June 1 to avoid a government-controlled bankruptcy.
Both GM and Chrysler have faced pressure to cut struggling dealerships to bring their large sales networks line with those run by more successful rivals led by Toyota Motor Corp (7203.T). Toyota, No. 2 in U.S. sales behind GM, has about 1,200 dealerships in the country.
Chrysler is using the bankruptcy process to move faster toward that goal, while GM plans to tell its dealerships they are being dropped for not meeting standards for capitalization and profitability.
GM wants to cut its dealer network to 3,605 from over 6,246 at the end of 2008. But it has not specified how it would achieve that and how many dealerships would be involuntarily terminated and how many it expected to go bankrupt or shut down on their own.
Chrysler's plan has remained under wraps.
GM Chief Executive Friz Henderson said on Monday the automaker was completing its plans for dealership consolidation this week.
Chrysler Chief Executive Bob Nardelli said in a memo to staff on Tuesday, a copy of which was obtained by Reuters, that the automaker would determine how to organize its dealer networks during the rest of the week.
Carroll Smith of Monument Chevrolet in Houston, one of the 100 new car dealers who lobbied lawmakers in Washington, warned that a rapid wind down of outlets could lead to a flood of new vehicles hitting the market simultaneously at much lower prices, further undercutting hard-hit dealers.
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