GM slashes U.S. dealers after Chrysler

By David Bailey and Kevin Krolicki

DETROIT (Reuters) - General Motors GM.N said it would drop about 1,600 U.S. dealers as it struggles to slash billions of dollars in operating costs and debt ahead of an anticipated bankruptcy filing by the end of the month.

Taken together with a similar announcement by bankrupt Chrysler a day earlier, over 2,300 U.S. auto retailers have been put on notice that they are being eliminated by the two embattled automakers.

The unprecedented closures taken under the direction of the Obama administration put over 100,000 jobs at risk across the United States and show the spreading economic pain from the collapse of the two Detroit-based automakers.

GM said it planned to drop about 1,100 of its smaller and less profitable dealerships by letting their franchise agreements expire when they come due in October 2010.

The automaker also expects to drop another 470 dealerships from cutting its Saab, Hummer and Saturn brands.

After other dealerships fold or merge in coming months, the plan is for GM to end up with about 3,600 showrooms by the end of next year for its Chevy, Cadillac, Buick and GMC brands.

That would represent a 40-percent reduction in GM's far-flung dealership network that has been protected until now by a patchwork of state franchise laws that made automakers reluctant to move quickly to drop dealers.

GM spent more than $1 billion (659.9 million pounds) to close its Oldsmobile division and shut down some 2,800 dealerships earlier this decade, an experience that made it reluctant to take on its widely recognized problem of having too many dealers competing for a shrinking share of U.S. auto sales.