General Motors Corp. (GM) told 1,100 U.S. dealers Friday they will be phased out by October 2010, acknowledging the plan could be difficult to execute outside of bankruptcy protection.

The move marks the first phase of efforts by the company to cut its U.S. dealer network by 40% by the end of 2010, part of wider restructuring efforts needed to win further U.S. government backing by a June 1 deadline.

"Without a legal filling, these [dealer cuts] would be hard to enforce," said GM sales chief Mark LaNeve on a conference call with reporters. "They may want to take legal action. We're not looking to get into a legal battle."

GM has said it hopes to avoid a Chapter 11 filing, though Chief Executive Fritz Henderson said this week a move into court was "probable".

The company's preparations have intensified since the U.S. adminstration ousted Rick Wagoner as CEO in March after rejecting GM's previous restructuring proposal.

Chrysler LLC, which filed for protection April 30, is using court protection to cull a quarter of its U.S. dealer network under plans announced Thursday.

LaNeve said it's not clear how far dealers will go to challenge the closing plan. The auto maker will offer to help dealers "wind down" and reduce inventory in hopes of encouraging them to go voluntarily.

Rather than terminating contracts like Chrysler, GM will refuse to renew dealer agreements, most of which expire in October 2010.

"The legal parameters around what you can do and can't do would change" in bankruptcy, LaNeve said.

GM said it wouldn't release the names of the dealers affected since they are independently-owned businesses.

The company said 18% of its U.S. dealer network received letters informing them the auto maker plans to phase them out over the next 18 months.

They have a combined inventory of 65,000 cars and trucks and employ tens of thousands of salespeople, mechanics and other personnel.

GM expects additional reductions will come as dealers, struggling with the worst sales environment in decades, naturally go out of business.

GM believes having fewer, healthier dealers helps it better compete with rivals such as Toyota Motor Corp. (TM), which have newer, better financed dealerships in attractive locations. An over-concentration of dealerships also can erode profits because stores are forced to compete against each other by driving down prices.

The company said it will soon update 470 Saturn, Saab and Hummer dealers on the status of its efforts to offload those brands.

LaNeve said the Obama administration's auto task force, which is overseeing GM's restructuring, thinks the dealer reductions are "a good plan." He added that it hasn't seen the list of dealer closings and did not mandate how many to cut.

GM's dealer actions in the U.S. contrasts with efforts by distributors overseas. European dealers agreed Friday to invest in a proposed buyout of GM's regional operation, with offers expected on May 20.

GM's shares were recently down 4.3% at $1.10.

-By Sharon Terlep; 248-204-5532; sharon.terlep@dowjones.com.

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