Cadillac President Johan de Nysschen has warned it will take time to rebuild the brand's momentum.
Weeks after telling its 925 dealers in the U.S. that they will need to spend big as part of Project Pinnacle, the luxury brand’s quest to once again be a top competitor in the segment, Cadillac is offering some of its dealers a get out of jail free card.
Actually, according to Automotive News, General Motors’ luxury brand is offering 400 dealers as much as $180,000 to close up their stores by the end of next year if they are unwilling or unable to expend the capital needed to upgrade their retail locations.
The dealers in question are the brands 400 “smallest” dealers in the U.S., the paper reported. Cadillac President Johan de Nysschen quickly tried to allay fears that the brand is trying to thin out the herd and that the program is being offered as an alternative for dealers who don’t have the resources to make the commitment.
“Our target is zero” defectors, de Nysschen told Automotive News. “Our target is to have 100% of the Cadillac dealers engaged with the Cadillac business.”
The program comes just as some dealers are organizing and pushing back on the ambitious plan to upgrade dealerships as part of the effort to compete with the likes of Mercedes-Benz, BMW and Lexus. Cadillac is the sixth-largest brand in the U.S. Its sales are down 6.2% through August.
(Expensive Cadillac product plan getting squeezed. For more, Click Here.)
The 2017 Cadillac XT5 is the replacement for the SRX. As a luxury utility vehicle, it checks all the boxes.
Project Pinnacle calls for the 925 dealers to be split into five tiers based on sales volume. Each tier gets a scaled level of service standards and incentives for meeting different sales goals. The downside to the plan, from a dealer perspective, is that the locations in the lowest tier, i.e. the lowest sales, wouldn’t get new vehicles for their showroom.
Those stores would essentially become service centers and if someone wanted to buy a vehicle, the staff would direct them to a “virtual showroom” onsite for the sale. No real vehicles makes it very difficult to gain new customers, they argue.
Once the plan was announced it didn’t take long for the pushback to begin. The California New Car Dealers Association fired off a letter to GM CEO Mary Barra, saying that 52 Cadillac dealers there have “serious reservations” about the plan. The association also pointed out that the plan potentially violates multiple California state laws, although De Nysschen disagreed with that assertion.
The offers start at $100,000 and have a median value of $120,000, de Nysschen said. All of the dealers eligible for the offer sold fewer than 50 new Cadillacs to retail customers in 2015. They represent 43% of the brand’s dealerships but only about 9% of its sales last year, Automotive News points out.
(Cadillac Escala Concept reveals new design direction for Detroit brand. Click Here to check it out.)
To assuage some dealers, Cadillac pushed the opt-in date for Project Pinnacle from Oct. 1 to Jan. 1, 2017. Additionally, the smaller dealers have until Nov. 21 to decide whether to take the money and run. Automotive News reports that more than 470 dealers accounting for 83% of Cadillac’s sales volume have already signed on.
However, many dealers see this as an attempt to shrink the dealer base, reviving memories of GM’s efforts to cut down its dealer body during and after bankruptcy. Some dealers took the GM – as well as Fiat Chrysler, which also filed for bankruptcy protection – to court to fight the move; however, some didn’t have the financial resources to survive.
In fact, a National Automobile Dealers Association survey of Cadillac dealerships found that 87% of them think Project Pinnacle’s real purpose is to eliminate many of Cadillac’s smaller dealerships.
(To see more about Mercedes adding two more GT models, Click Here.)
De Nysschen claims the opposite is true and that the smallest dealers will benefit the most from the plan. He said the program makes it easier for smaller dealerships to meet Cadillac’s standards and generate more profit, thus moving up the tiers. He also noted the program was developed in partnership with Cadillac’s national dealer council.