General Motors Co has offered to keep open 661 of its U.S. dealers once targeted for closure as it tries to shore up sales after emerging from bankruptcy last year.

GM once planned to terminate franchise agreements with about 1,300 U.S. dealers in a bid to operate its retail networks more efficiently and return the company to profitability. Some 1,160 of them have sought arbitration.

By doing this we save a lot of time and energy and dollars, Jim Bunnell, GM's general manager of dealer network support, said during a Friday conference call with reporters.

GM North American President Mark Reuss said the automaker has opted to reinstate more than half of the dealers appealing closure in an effort to complete the arbitration process before the congressionally mandated deadline of July 15.

The company plans to continue settlement talks with about 500 dealers who will not be offered reinstatement and remain in arbitration, Reuss said.

Keeping some of the dealerships targeted for shutdown could help GM defend its U.S. market share at a time when auto sales recover from the biggest downturn since the recession of the early 1980s. GM was overtaken by Ford Motor Co as No.1 in U.S. auto sales in February for the first time since 1998.

But the move would also undercut GM's efforts to trim its massive retail networks, which have in some markets forced dealers selling the same models to compete against each other with advertising and incentives.

To be reinstated, the dealers will have to meet certain business criteria, including minimum working capital requirements, sales and profitability within 60 days of receiving reinstatement letters next week, GM said.

We are highly confident that this is the right size and the right quality, Reuss said.

If all 661 GM stores offered reinstatement indeed remain open, there would be about 4,800 dealerships selling GM's four core brands: Chevrolet, Buick, Cadillac and GMC.

GM had 6,150 dealerships at the end of 2008, including franchises of Saturn, Saab, Hummer and Pontiac -- the four brands GM is selling or winding down.

The Committee to Restore Dealer Rights, a dealer group that lobbied Congress for the arbitration legislation, welcomed GM's move and called on Chrysler Chief Executive Sergio Marchionne to follow suit.

These voluntary reinstatements send a powerful signal that GM recognizes the importance of a strong dealer network to its resurgence, the group said in a statement.

The U.S. Treasury owns 60 percent of GM after the 2009 bankruptcy restructuring.

Congress in December required an arbitration process for terminated dealerships at GM and Chrysler, which received more than $65 billion combined in taxpayer-supported bailouts and other financing over the past year.

Chrysler closed nearly 800 showrooms last June when it emerged from bankruptcy under new management led by Italy's Fiat SpA . More than half of them have sought arbitration, saying their franchise rights were terminated unfairly.

The arbitrator under the legislative plan would be required to consider dealer profitability over the past four years as well as how a dealer would support the plans at GM and Chrysler to become viable.

Arbitration would also take into account how well a dealership was capitalized and dealership performance.

GM Chief Executive Ed Whitacre said in January the company would review the circumstances surrounding termination decisions that were made under his predecessor, Fritz Henderson, who was forced out in December in a split with the board.

GM has already agreed to reinstate dozens of dealers in an earlier, in-house appeals process. It has also budgeted up to $600 million to compensate dealers.

(Reporting by Bernie Woodall and Soyoung Kim, editing by Matthew Lewis and Phil Berlowitz)

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