LOS ANGELES – In a move that could provide economic relief for hundreds of communities nationwide, General Motors Co. said it will reinstate nearly 700 dealerships that the automaker had planned to drop from its sales network.

The company sought to shed what it considered excess dealers as part of a bankruptcy reorganization last year, a move to bring its franchise network better into balance with its declining car sales. Closing unprofitable and poorly performing franchises was expected to channel business to the stronger dealers.

Additional Photos

Joanne and Dan Ganim of Hamilton, Mass., look over a Chevrolet Traverse at a Danvers dealership. GM has about 5,500 dealers nationwide. 2009 Associated Press file

But 1,160 dealers took the automaker to arbitration, and on Friday, GM said it plans to let 661 of them keep their franchises as long as they meet what it called “standard” performance criteria in regard to their facilities and capitalization, among other factors.

Bill Hatfield, owner of Hatfield Buick GMC in Redlands, Calif., hopes he is on the list.

His dealership has been selling cars since 1913 but received a letter in May that the franchise would not be renewed.

On Friday, Hatfield said his phones were “ringing off the hook” as local customers eagerly hoped that the dealership would be saved.

“We’re kind of in a waiting situation. We’ll either get the letter or we won’t, but I’m sitting here on eggshells just waiting to see what they do,” Hatfield said of the dealership. “We’re still profitable, and we’ve worked all along with the idea that we’ll get the franchise back.”

GM, which did not provide a list of the dealers and locations that would be reinstated, said it planned to call the franchise owners it will keep next week and follow up with formal letters.

“We are eager to restore relationships with our dealers, and get back to doing what we do best — selling cars and taking care of customers,” said Mark Reuss, president of GM North America. “The arbitration process creates uncertainty in the market. We believe issuing these letters of intent is good for our customers, our dealers and GM.”

After GM and Chrysler Group, which also went through a bankruptcy restructuring last year, disclosed plans to close a combined 3,000 franchises, dealers and their supporters complained, arguing that such businesses were important to the economies of the communities where they are located.

The average dealer employs nearly 50 people and pumps $16.5 million a year into the local economy, including payroll, taxes, payments to vendors, advertising and charitable giving, said Paul Taylor, chief economist of the National Automobile Dealers Association.

Congress stepped in and passed legislation requiring the automakers to set up an arbitration process that would be completed by July 15.

That deadline created a certain expediency to reinstating hundreds of the dealers, GM officials said.

“It would have been virtually impossible to arbitrate 1,100 cases in a 120-day period,” Susan Docherty, GM’s U.S. marketing chief, said in a conference call announcing the automaker’s decision.

GM has not come close to its goal of dramatically slashing its dealer network. The company had about 5,500 dealership locations as of Jan. 31, down just 700 from the end of 2008, prior to the recession and the auto industry’s sales plunge of 2009.

But maintaining hundreds of dealers more than it expected is unlikely to hurt GM’s financial performance, said Jeremy An- wyl, chief executive of the auto information company Edmunds.com.

GM is likely to make a profit this year after years of massive losses, its chief executive, Edward J. Whitacre Jr., predicted earlier this year.

Ironically, the impetus for closing dealerships came from the experience of Toyota Motor Corp., which because of the recall of millions of vehicles in recent months, is now losing sales to GM and other U.S. auto- makers.

“Everybody looked at how Toyota has only 1,500 dealers and that those dealers are more profitable,” Anwyl said. “Ideally, that allows those dealers to invest in nicer facilities and hire better salespeople because they sell more cars per store.”

But Anwyl said that terminating hundreds of dealerships doesn’t automatically reap those advantages — and it may actually create some disadvantages.

“A large number of dealers gives you coverage in rural America,” he said. “Where are those people supposed to buy vehicles?”

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