The AA is closing down its 142 high-street shops with the loss of 850 jobs. It is also selling Home Assistance, its emergency plumbing and DIY operation, to Aon Risk Services, the US group.
Meanwhile, the AA has also ended its insurance underwriting joint venture with Eagle Star.
The moves are the result of a major strategic review announced last year by John Maxwell, the AA's director general, which is designed to make the organisation more efficient.
This follows increased competition in the AA's core breakdown market. Two of its main competitors, the RAC and Green Flag, are due to be merged by their new owner, the US marketing group Cendant.
Direct Line, the insurance group, recently launched its own roadside service.
The AA said its shops, which mainly sold insurance, were obsolete now that customers preferred to buy their insurance over the phone.
The group sells 80 per cent of its insurance policies through its call centres.
The shops lost pounds 1.8m last year while the entire AA earned a surplus of pounds 40.4m. They will be closed down over the next 12 months and the leases transferred to other retailers.
Mr Maxwell said: "We are totally committed to improving service in our core roadside business. This must involve improving our cost efficiency and adapting our business to meet the changing demands of our members."
The strategic review is still set to decide on the fate of the AA's other operations, which include selling motor insurance and maps and inspecting hotels and garages.
However, an AA spokesman stressed that it was committed to remaining as a mutual organisation and would not follow the RAC's in putting itself up for a takeover.
The group is spending an extra pounds 20m this year on improving its roadside assistance business, mainly by expanding the number of patrols.