GM Feels Bankruptcy Taint as Skittish Customers Avoid Dealers

By Chris Burritt and Duane Stanford

Dec. 13 (Bloomberg) -- General Motors Corp. executives say they’ve resisted the bankruptcy option because customers would be scared off, anticipating the largest U.S. automaker will disappear for good.

Some consumers have already been spooked.

“I would not buy a car from a company that is going bankrupt,” Chris Hammer, a 58-year-old hotel bellhop in Greensboro, North Carolina, said after test-driving a red 2005 Mercedes Benz convertible. He won’t buy a GM car because sales outlets would close in a bankruptcy. “You may have to drive 30 or 40 miles to find a dealer with a mechanic to work on it.”

GM was thrown a lifeline yesterday by the White House, which said it will consider providing short-term aid after the Senate rejected a bailout plan for the auto industry. That won’t assuage car shoppers concerned about obtaining parts and service from the Detroit-based company, now leaking $67 million a day. Those worries come on top of tighter financing in an economic crisis.

“What sort of nut would by a Chevy Malibu right now?” said Mike Palmer, a Greensboro hair stylist. “If I knocked off the front-hood ornament, would I be able to replace it? I’d be worried about warranty problems.”

Palmer, 51, drives a 2001 Toyota Tacoma pickup truck. Debbie Henderson, one of his customers at Cutters II Hair Salon, said she’d “be afraid to buy a GM now.”

“If the company is going out of business, where are you going to get parts?” said Henderson, who works at a vinyl porch railing factory in Randleman, North Carolina. “It would be like buying something discontinued.”

‘Too Big to Fail’

GM Chief Executive Officer Rick Wagoner spoke with Treasury Secretary Henry Paulson yesterday about short-term aid that would stave off insolvency, a person familiar with the talks said. The White House said it may tap the Troubled Asset Relief Program to provide assistance to GM and Chrysler LLC, owned by Cerberus Capital Management LP.

Warranties would stay in effect and parts would still be available if GM sought protection, said Steve Burrow, sales manager at the Vestal Pontiac Buick and GMC Truck dealership in Kernersville, North Carolina.

Customers of the 44-year-old dealership aren’t asking about a possible GM bankruptcy, said Burrow, who’s 62 and a 12-year Vestal employee.

“Most people think GM is too big to fail, and I agree,” Burrow said. “So many things have been exaggerated.”

After falling in November, sales at the dealership have climbed 10 percent so far this month, compared with a year earlier, said Burrow, declining to provide figures.

“It’s more the economic climate than worry about whether GM is going to be around,” Burrow said.

Blind Spot, Noise

At Atlanta Toyota, one of Georgia’s largest Toyota dealers, eight car shoppers sat negotiating at round tables in the temporary sales center. Outside, amid construction on a multimillion-dollar expansion, customers roamed the lot.

Detroit-born Tom Ludwig, who opposes the bailout, waited to complete the financing on the first Toyota he would ever own. Ludwig test drove a Ford Fusion that had an annoying blind spot and a noisy engine, he said. He considered the price too high.

“It was almost as though there was no bankruptcy or hard times,” said Ludwig, who once owned a 1985 Ford LTD station wagon he drove 250,000 miles without replacing the engine or transmission.

New car purchases in 2008 are down 20 percent from last year, said David Hart, director of sales at Atlanta Toyota, which is located in the city suburbs of Gwinnett County. In November, the dealership sold about 200 cars, or 38 percent fewer than last year, Hart said. Many of those sales shifted to used cars, he said. The business remains profitable.

‘Spending Less’

“People are still buying but they’re spending less,” Hart, 30, said.

To boost sales and take customers, Atlanta Toyota is offering free financing on an unprecedented 11 models, Hart said, and giving a $5,000 rebate for the Highlander SUV.

“They see right now there’s an opportunity for them to capture market share,” Hart said.

Customers sense opportunity, too, Hart said. Some who demand prices below cost are turned away. Others browse, waiting for a lower price. One woman walked out after she couldn’t get a car that retailed for $40,000 down to $30,000.

At Rick Hendrick Chevrolet a couple miles away, there weren’t any customers on the lot. New Car Director A.J. Hardy said three cars sold that morning. Business has been down 20 percent the past two months, said Hardy, 46. GM is offering an $11,000 rebate of some models to spur sales.

Hardy’s biggest problem has been tighter financing for customers. He said he would support a bailout only if it changes the way GM does business.

“I don’t want to say I want General Motors to go bankrupt because it will hurt us some,” he said. “But if they did they would restructure and become stronger.”

To contact the reporters on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net; Duane D. Stanford in Atlanta at Dstanford2@bloomberg.net.