Cutting back production and right-sizing brands and lineups is just one aspect of the restructuring underway at the hands of the U.S. federal government. Earlier this week hard cuts in both labor and dealership numbers were discussed, foreshadowing the next steps to come, and just yesterday a Chrysler memo revealed that up to 789 dealers will be eliminated by June 9. Today, GM announced that it will notify 1,100 of its U.S. dealers that their franchise agreements will not be renewed.

"Approximately 1,100 underperforming and very small sales volume U.S. dealers will be advised that GM does not see them as part of its dealer network on a long-term basis. In most cases, existing franchise agreements run through October of 2010," the company said in a statement. That, combined with cuts already announced, will bring the total of GM dealers in the U.S. from the current 5,969 down to about 3,600 by the end of 2010. Another 470 Saturn, Hummer and Saab dealers will also be notified of future plans for those brands, though GM expects to retain 90% of them as GM-brand dealers.

Dealers have been worried how President Obama’s auto industry task force will undertake to bring the respective GM and Chrysler dealer networks in line with current market conditions for weeks now. The final numbers indicate that 1,124 dealers were sent the notice today.

The impact from the GM dealers cuts is expected to be much more severe than the Chrysler cuts. While many Chrysler dealers also sell other brands and will stay open after losing their franchises, a large number of GM dealers exclusively sell GM products.

Furthermore, many dealers are worried that by reducing the number of dealers, overall sales for both carmakers will slide even further, compounding the problem and potentially putting the entire dealer network at risk. But GM's Mark La Neve wanted to point out that even with the 1,124 franchise termination notices being sent out, no dealer is actually out of business right now.

“We are not terminating any dealerships today,” said LaNeve. “We will be talking to all of our dealers over the next few weeks, letting them know now in the spirit of open communication, so they are advised well in advance, about our long-term plans and their role in them. Long term, GM should have fewer, healthier dealers, maintaining GM’s current high customer satisfaction ratings, with more sales per outlet.”

On the other hand, about 63,000 dealership employees will have to begin looking for jobs in a rapidly shrinking sector. The National Automobile Dealer's Association (NADA) had this to say about GM's announcement: "We view GM's action with a profound sense of sadness and disappointment. GM's decision comes through no fault of the dealers, who are, in many cases, family-run businesses that have been loyal partners with GM - through good times and bad - for multiple generations.

"NADA fully expects GM to honor all its obligations to the affected dealers, whether or not they decide to wind down their operations. It's critical for GM to treat each affected dealer fairly and equitably."

GM is making the hard decision, but it is open to the idea that it could be wrong, and will have an appeals process. "We don't anticipate that there'll be much reversing of these decisions," LaNeve told Automotive News. "If they have issues that should be brought to our attention, there is a Web site that they can submit that to. We may have made a mistake, and we may have had bad data."