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 into better balance with its declining car sales. Closing unprofitable and poorly performing franchises was expected to channel business to the stronger dealers.

But 1,160 dealers took the automaker to arbitration, and GM said Friday that 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.

The announcement came as welcome news to a Maryland GM dealer who said his business was not directly affected by GM's restructuring but he viewed it as a positive sign.

John Miller, president of Miller Brothers in Ellicott City, which sells Cadillacs and Chevrolets, said the dealership had been offered an agreement with GM. But the closures of many other GM dealerships would have hurt communities that depend upon them for jobs and charitable giving, he said.

"It's great news," he said. "When the bankruptcy took place, nobody knew how it would end up. Dealers that got wind-downs are now having consideration for reinstatements."

The overall impact of GM's decision on Maryland was not immediately apparent Friday.

Peter Kitzmiller, president of the Maryland Automobile Dealers Association, said that as far as he knew, none of the state's GM dealers had been notified yet. Of the 95 GM dealerships in Maryland, he said, about 18 had been slated to close. He said he believed all of them had planned to appeal.

GM, which did not provide a list of the dealers and locations that would be reinstated, said it plans 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."

It also looked as if the move would help to solve a thorny public relations problem. 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 are important to the economies of the communities in which they are situated.

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 the reinstatement of 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 decision.

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

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

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

"It doesn't really cost GM that much to have a dealer that is not very successful," Anwyl said.

Ironically, the impetus for closing dealerships came from the experience of Toyota Motor Corp., which because of its recalls of millions of vehicles in recent months, is losing sales to GM and other U.S. automakers.

"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 sales people because they sell more cars per store."

But Anwyl said terminating hundreds of dealers would not automatically reap those advantages and might create some disadvantages.

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

Jack Fitzgerald, who owns three GM dealerships in Anne Arundel, Frederick and Montgomery counties that he expects will remain open, made a similar observation.

"If you don't take care of the customer," Fitzgerald said, "you're going to lose the customer."

Baltimore Sun reporters Lorraine Mirabella and Gus G. Sentementes and the Los Angeles Times contributed to this article.