The 2009 terminations · Reference · TFR-2026-04

Two companies, two legal routes, seven weeks: how 789 and 1,454 dealerships were cut in 2009

First published 2026-08-05 · Last substantively revised 2026-08-05

Between April 30 and June 19, 2009, two manufacturers in two federally supported bankruptcies ended thousands of franchise agreements by two entirely different legal mechanisms. Chrysler asked a bankruptcy judge to let it reject 789 dealer agreements as executory contracts, and the rejections took effect four weeks after the letters went out. General Motors did not start in a courtroom: it sent 1,454 dealerships a wind-down agreement to sign, due back by June 12. The difference in method decided what each dealership could do about it, and it is the reason the counting in this story goes wrong so often.

§1 The decision that set the pace was made in Washington, in March

¶Both manufacturers were already planning to shrink. Chrysler’s pre-bankruptcy plan, “Project Genesis,” aimed to reduce its network from 3,181 dealerships to about 2,000 by 2014. General Motors had told Treasury it would cut roughly 300 dealerships a year through 2014. Both were gradual, and both were rejected.

¶In February 2009 the two companies submitted restructuring plans to the Treasury Department, as their loan agreements required. In March the Auto Team rejected them. According to the Special Inspector General for the Troubled Asset Relief Program, whose July 19, 2010 audit is the fullest documentary account of this episode, the Auto Team “was so convinced of the need for the acceleration of dealership closings that it highlighted GM’s proposed pace of dealership closings (approximately 300 a year over five years) as one of the primary obstacles to its continued viability, and required GM to revise its proposal to address the Auto Team’s concerns as a condition for receiving the additional TARP support that GM believed it needed to survive.”1

¶The audit records the reasoning as a theory rather than a calculation: with fewer dealerships, and thus “less internecine competition,” the survivors would sell more, spend less on floor-plan financing, invest more in facilities and staff, and improve the brand. It also records that the Auto Team believed the companies’ best chance of success required “utilizing the bankruptcy code in a quick and surgical way,” and that it would have been a “waste of taxpayer resources” for them to exit bankruptcy knowing the networks would still have to be reduced.1

¶What follows is what the two companies did with that instruction. They did not do the same thing.

§2 Chrysler: rejection under 11 U.S.C. § 365, decided by a judge

¶Chrysler LLC filed for Chapter 11 protection in the Southern District of New York on April 30, 2009, Case No. 09-50002, before Judge Arthur J. Gonzalez. On May 14 it sent termination letters to 789 dealerships and, the same day, filed an omnibus motion under sections 105, 365 and 525 of the Bankruptcy Code and Bankruptcy Rule 6006 seeking authority to reject their agreements as executory contracts. The request under section 525 was dropped before the order issued; the case was decided under section 365.12 Rejection is not cancellation. It is a breach that the estate is permitted to commit, and it converts the counterparty into an unsecured creditor with a damages claim — here, a claim against an estate whose operating assets were being sold to a new company that was simply not taking those contracts.

¶An evidentiary hearing was held on June 4, 2009. Fifteen witnesses testified live and approximately 66 more submitted testimony by proffered declaration; over two hundred objections, statements, items of correspondence and other responses were filed against the motion. The court granted it on June 9 and issued the written opinion ten days later.2 The terminations took effect on June 10, 2009. The audit describes that as Chrysler “terminating 789 dealerships (25 percent of its network) within 22 days,” a figure it states three times and never derives; the interval between the two dates in its own timeline — letters May 14, effective June 10 — is twenty-seven. Either way it is the shortest interval in this story, and no appeal existed inside it.1

¶The opinion applied the business judgment standard to the rejection and declined the dealers’ request for a heightened “public interest” test or a balancing of the equities. On the state statutes written to prevent exactly this, it held:

“the Court concludes that the Dealer Statutes are preempted by § 365 with respect to rejection of the Rejected Agreements. Of course, as with contract rejections in general, damages are still calculated according to state law.”

In re Old Carco LLC, 406 B.R. 180 (Bankr. S.D.N.Y. June 19, 2009), Doc. 4145, at 22

¶State franchise law survived to measure a claim and was preempted for the purpose of stopping the termination. That mechanism has its own article here — Why state good-cause protections did not stop the 2009 terminations — and is not reargued on this page.

¶Chrysler selected dealerships case by case and market by market and offered no appeals process at all. The audit is even-handed about the result: SIGTARP “did not identify any instances” in which Chrysler departed from its stated, if subjective, criteria.1 Chrysler’s stated gain was concentration — the share of its dealerships selling all three of its brands rose from 62 percent to 84 percent, and the retained dealerships had generated 86 percent of its 2008 new-vehicle sales.1 Chrysler officials also told SIGTARP that before the bankruptcy “they had a difficult time closing dealerships because of state franchise laws.”1

§3 General Motors: wind-down agreements, due back by June 12

¶General Motors Corporation filed for Chapter 11 on June 1, 2009. In the same week it moved to end 1,454 of its 5,591 dealerships — 26 percent of the network — by October 2010.1 There was no motion and no hearing on that. GM asked the dealerships to sign a contract, and for every dealership that signed, no judge ever ruled on whether it should close. The court reached only the ones that refused: the sale order of July 10, 2009 terminated the dealerships that had not returned a wind-down agreement.1

¶The selection ran in two phases. Phase one, in May, identified 1,096 dealerships on either of two objective tests: a Dealer Performance Summary score below 70, or fewer than 50 new vehicles sold in 2008. Fourteen of those decisions were reversed before agreements went out and eleven dealers terminated voluntarily, leaving 1,071 to receive agreements. Phase two, in early June, added 383 more. Of those, 144 sold only Pontiac or GMC Medium Duty Trucks, brands GM had decided to eliminate; the other 239 were picked on what GM officials described to SIGTARP as a “more aggressive” set of five criteria.1

¶The agreements went out in the first week of June 2009. To receive any compensation, a dealership had to sign and return one by June 12, 2009. GM committed $587 million in total compensation, calculated by a formula on dealership rent, sales and late-May new-vehicle inventory, paid 25 percent up front with the balance on milestones. Wind-down dealerships had up to 16 months to sell their remaining inventory and could not order new vehicles. By May 1, 2010, 409 of them had asked to close early.1

¶GM did run an appeals process, which Chrysler did not. It opened on June 4, 2009 and closed on August 7, 2009, and dealers had to sign and return the wind-down agreement by June 12 regardless of whether they were appealing.1 The audit’s findings on how consistently GM’s criteria were applied, and on what it did and did not write down, are set out in a separate article — The criteria: what General Motors used to pick 1,454 dealerships — and are not summarised here.

¶Congress was watching this happen in real time. On June 3, 2009 — two days after GM’s filing and the day before the Chrysler evidentiary hearing — the Senate Committee on Commerce, Science, and Transportation held a hearing titled “GM and Chrysler Dealership Closures: Protecting Dealers and Consumers,” published as S. Hrg. 111-444.6 That record fixes how much time the wind-down deadline actually left. Senator Olympia Snowe told the committee she had obtained a copy of the agreement “last night,” described it as “12 pages, single spaced,” and said no one could “possibly make a decision within the 10 days they were required to make a decision.” GM’s president and chief executive, Fritz Henderson, answered that “almost half of the dealers signed it the day they received the wind-down agreement.”6

¶The legislative response is covered in S. 1304 and H.R. 2743: one bill, two numbers, and no vote and in Section 747: who qualified, what the clock was, and what winning was worth. What matters on this page is the order of events: the hearing came after the letters, and the statute came six months after the terminations.

§4 The numbers, defined

¶Most bad accounts of 2009 are counting errors rather than arguments. Six figures circulate, all of them correct, all of them describing different populations. They are set out here so that no sentence on this site has to guess which one it means.

Terminations and eligibility, 2009–2010, by definition

Figure	What it counts	Source
789	Chrysler dealer agreements rejected under § 365, effective 2009-06-10, out of 3,181 — almost 25 percent of the network.	SIGTARP-10-008
1,454	GM complete wind-downs out of 5,591 — 26 percent — to be finished by October 2010.	SIGTARP-10-008
1,289 + 165	The composition of that 1,454: core-brand dealerships, plus 165 wind-downs related to the discontinued Pontiac and GMC Medium Duty Truck brands.	SIGTARP-10-008 n.2, n.18
2,385	A separate set of GM dealerships given partial wind-down notices: they lost one or more brands and stayed open. Not terminations of the dealership.	SIGTARP-10-008
2,789	Dealerships later made eligible to file for arbitration under Section 747 — 2,000 from GM’s network and 789 from Chrysler’s.	AAA report to Congress
1,575	Of those eligible, the number that actually filed. Of those filings, 166 reached a written determination and 55 were decided for the dealership.	AAA report to Congress

¶Stated as a rule, because it is the error this page exists to stop: 1,454 and 2,000 are both correct GM figures, for different things, and neither may be used to describe the other. The first is GM’s complete wind-downs in 2009. The second is GM’s share of the population Congress made eligible for arbitration a year later, under a statutory definition that reached any covered dealership whose franchise agreement was terminated, not renewed, not assigned or not continued between October 3, 2008 and December 31, 2010.4 Neither the AAA’s report nor SIGTARP’s audit breaks the 2,000 down further, and no source located for this article explains how it is composed. That is recorded here as unknown rather than reconciled by arithmetic.

§5 What the audit found about why

¶Two findings in SIGTARP-10-008 reframe the whole sequence, and both cut against the explanations offered at the time.

¶The first is that this was not a cost-cutting measure. The audit states that “the acceleration of dealership closings was not done with any explicit cost savings to the manufacturers in mind,” and that the anticipated benefits of a smaller network were “far more amorphous.”1 Franchised dealerships are independently owned businesses that buy vehicles from the manufacturer, and the audit names the anticipated benefits as a better “brand equity” and the potential ability to reduce dealership incentives over time, rather than any identified saving on the manufacturers’ side.

¶The second is that the jobs were counted afterwards. “Job losses at terminated dealerships were apparently not a substantial factor in the Auto Team’s consideration of the dealership termination issue,” the audit found; “it was only after the decision was made that the Auto Team considered the impact its decision would have on job losses.” The estimate, when it came, was specific. An internal Auto Team memorandum dated April 20, 2009 put GM dealership terminations at 43,081 jobs lost in the short term and 25,597 over the long term, and — on the separate assumption that Chrysler would go out of business altogether — 72,620 and 43,580. The same memorandum put the average dealership at 52 employees and assumed about half of them, the service staff, would find work quickly. The audit records that the National Automobile Dealers Association’s estimate of roughly 50 jobs lost per terminated dealership “is challenged by the manufacturers as too high.”1

¶SIGTARP’s conclusion is quoted here in full because it is the strongest sentence any government body has written about these terminations, and because paraphrasing it would soften it:

“Although the restructuring of GM and Chrysler inevitably required an overall reduction in their own workforces (and the termination of a certain number of poorly performing dealerships), it is not at all clear that the greatly accelerated pace of the dealership closings during one of the most severe economic downturns in our Nation’s history was either necessary for the sake of the companies’ economic survival or prudent for the sake of the Nation’s economic recovery.”

SIGTARP-10-008, Conclusions, July 19, 2010

¶The audit supports that with two comparisons it draws itself. Once the arbitration legislation passed, GM offered to reinstate 666 dealerships and Chrysler offered to reinstate 50, with a senior GM official saying the resulting number of dealerships “won’t damage GM’s ability to recover or grow the company” — which suggests, the audit says, “that the number and speed of the terminations was not necessarily critical to the manufacturers’ viability.” And Ford Motor Company, described in the audit as GM’s top rival among U.S. automakers and as itself carrying out plans to “aggressively restructure to operate profitably,” “is closing dealerships at a rate similar to that in GM’s original restructuring plan which was rejected by Treasury.”1

¶What the audit does not establish is equally worth stating. It found that the pace was not clearly necessary. It did not find, and this page does not say, that any particular dealership was closed for any particular improper reason.

§6 Still open

¶The seven weeks are closed and the mechanisms are settled law. Chrysler’s route required a judge and produced an opinion that can be read; GM’s route required a signature and produced a contract, which is why so much less of it is public. Congress’s answer, Section 747 of the Consolidated Appropriations Act, 2010 (P.L. 111-117, 123 Stat. 3219), created an arbitration right rather than restoring the agreements: election had to occur within 40 days of the December 16, 2009 enactment, so the window shut on January 25, 2010.4 There is no live mechanism for a dealership terminated in 2009 to reopen that question, and the 55 determinations that went the dealers’ way bought less than the word “win” suggests — see What an arbitration win was actually worth.

¶Parts of the record remain unanswered rather than merely unpublished. The composition of the 2,000 GM dealerships counted as eligible is not broken out in either federal document. Of the 2,789 eligible, 1,214 never filed at all and another 493 filed and then withdrew; the AAA states that it cannot analyse the withdrawals, because parties were not required to give reasons.3 None of the 803 settlements has published terms. Those are gaps in the public record, and this site records them as gaps.

¶The question the record left behind has changed shape rather than gone away. In 2009 it was whether a manufacturer could end a franchise, and the answer turned on which federal statute happened to be in the room. In 2026 it is whether a manufacturer can go around one — selling through an affiliate, or a new brand, or a reservation programme, without terminating anybody. The state statutes at issue are, in many cases, the same statutes.

§7 Endnotes

1. Office of the Special Inspector General for the Troubled Asset Relief Program, Factors Affecting the Decisions of General Motors and Chrysler to Reduce Their Dealership Networks, SIGTARP-10-008, July 19, 2010. The sigtarp.gov site is offline; this is an archived copy of the original PDF. web.archive.org
2. In re Old Carco LLC, 406 B.R. 180 (Bankr. S.D.N.Y. June 19, 2009), Case No. 09-50002 (AJG), Doc. 4145 — opinion regarding authorization of rejection of executory contracts with certain domestic dealers. govinfo.gov
3. American Arbitration Association, A Report to Congress on the Automobile Industry Special Binding Arbitration Program, November 2010. icdr.org
4. Consolidated Appropriations Act, 2010, Pub. L. No. 111-117, § 747, 123 Stat. 3219 (Dec. 16, 2009), as enrolled. govinfo.gov
5. U.S. Government Accountability Office, TARP: Treasury’s Exit from GM and Chrysler Highlights Competing Goals, and Results of Support to Auto Communities Are Unclear, GAO-11-471, May 10, 2011: “Since December 2008, the Department of the Treasury (Treasury) has committed $62 billion in Troubled Asset Relief Program (TARP) funding to General Motors (GM) and Chrysler.” gao.gov
6. Senate Committee on Commerce, Science, and Transportation, GM and Chrysler Dealership Closures: Protecting Dealers and Consumers, S. Hrg. 111-444, June 3, 2009 — the contemporaneous hearing record for the events described in §§2 and 3. govinfo.gov

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