General Motors (GM) has decided to reinstate 661 of its U.S. dealers who had once been targeted for termination of franchise agreements. The restoration is intended to defend GM’s market share at a time when auto sales are regrouping from the recent economic downturn.

Last year, as part of its restructuring, GM has revealed that it would not renew franchise agreements with about 2,000 dealers. However, on account of protests from the dealers, Congress passed a law last month requiring an appeal process for the dealers.

As many as 1,160 dealers who were seeking to stay with the automaker, have sought arbitration. The automaker plans to complete the arbitration process before the Congress’ mandated deadline of July 15.

Along with the 661 dealers targeted for reinstatement, the automaker will continue settlement talks with another 500 dealers who will not be offered reinstatement and will remain in arbitration. The company has also budgeted up to $600 million to compensate the dealers.

GM’s network will be trimmed from 6,150 dealerships as of 2008 to 4,800 dealerships if all the 661 dealers offered reinstatement indeed remain open. The trimming would help the automaker to compensate for lower demand for cars and trucks and concentrate on its four existing core brands — Chevrolet, Buick, Cadillac and GMC.

Last month, GM saw an 11.5% rise in sales to 141,951 vehicles. The improvement was attributable to higher fleet sales (114%) and strong new models.

The automaker won an 18.1% market share during the month, according to Autodata Corp. The automaker’s four existing core brands witnessed a 32% rise in sales. However, Ford Motor Co. (F) outperformed GM for the first time in nearly a decade in terms of sales growth, sales volume and market share.

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