Chapter 11 Could Decimate Big Three Dealers

November 24, 2008
Dealership lawyers predict that Chapter 11 filings by any of the Big Three would "kill many of its dealerships quickly" even if the companies successfully reorganize, says Automotive News. The situation would place dealerships into an immediate cash shortage from which many would simply not recover.

What money would they miss out on in the event of Chapter 11? Automotive News says sales incentives, holdbacks, and warranty reimbursement payments from automakers direct to dealers would all cease, and with the current dearth of auto sales, this scenario could be the final turning point for dealers and the catalyst for their failure.

Bankruptcy court might allow automakers to pay dealerships just small fractions of the money they owe, and even those payments could be significantly delayed. Some industry pundits are claiming that it's high time that the domestics' (especially GM) sprawling, bloated dealer networks are dramatically trimmed, and it looks like Chapter 11 might just force that to happen. On the other hand, GM's Wagoner claims that nobody wants to buy from a bankrupt automaker. Wagoner cited research that claimed 80 percent of buyers would not consider purchasing a vehicle from a bankrupt automaker.

Would you buy a fantastically designed, great-driving vehicle from a bankrupt automaker? How about a dowdy little Daewoo Pontiac G3?--Colin Mathews

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