Size Matters, After All: GM Brings Back Fired Dealers

(MoneyWatch)  General Motors is reversing another key element of the "get-small" strategy it adopted in U.S. Bankruptcy Court last year under then-CEO Fritz Henderson.

The company has reinstated 661 dealers--more than half the number it put on the block last year. The decision is another indication that Chairman and CEO Ed Whitacre has a different idea from his predecessor about how small is too small.

The core management concept remains--that GM has to shrink in order to become profitable at smaller volumes. In bankruptcy restructuring under Henderson, the company cut its debt, closed factories, wound down the Pontiac brand and cut thousands of jobs. Whitacre has accepted all this.

But he has clearly had second thoughts about other aspects of the smaller-is-beautiful strategy. In November 2009, for example, a month before Henderson was forced out in favor of Whitacre, GM decided to keep its European Opel-Vauxhall operations even though it had announced plans to sell a controlling share to auto supplier Magna International (MGA). Whitacre, who was chairman at the time, strongly favored keeping Opel. He said publicly afterwards that GM needed to be a global player and couldn't be without Opel.

Meanwhile, GM has had problems getting rid of three ailing brands, although it has stuck with the plan to get rid of them. Hummer and Saturn had buyers, but both deals fell through and GM is phasing them out. An early deal for Saab also fell through, but tiny Dutch automaker Spyker appears to have rescued it. Dealers for these brands are out of luck.

GM is giving mixed signals about its motivation for reinstating the dealers. On the one hand, written statements from the company emphasize a legalistic argument. GM says it settled with 661 dealers because GM wanted to avoid time and trouble in taking individual dealerships into arbitration.

On the other hand, Mark Reuss, president of GM North America, repudiated the whole idea of terminations in a videotaped statement (see photo) on the GM media web site.

"I'm proud that General Motors is doing what is right," Reuss said. "... Doing the right thing for customers, doing the right thing for the company, and doing the right thing for dealers." He welcomed the dealers back "into the GM family."

A third and obvious argument is the one the dealers have made all along: fewer dealers mean GM's market share will fall. Henderson argued that unprofitable market share wasn't worth it. Whitacre agrees with that premise, but he may have decided Henderson cut too deeply.

Photo: GM