And we think it's a damn good idea.
Cadillac is doing its best to claw back up the luxury ladder. The American automaker has a ton of new models planned for the coming years, but before it rolls them out it’s looking to do a bit of addition via subtraction. Automotive News (AN) is reporting that 43% of the brand’s US dealerships—or a whopping 400 locations—have been offered a buyout. The buyout starts at $100,000 and could be worth up to $180,000. Cadillac head honcho Johan de Nysschen told AN that the media value of the buyout is $120,000 (calculated by size and performance).
The dealerships being offered the buyout accounted for just 9% of Cadillac’s sales in 2015, with each one selling less than 50 new cars last year. Now before you think the automaker is attempting to strong arm its underperforming dealerships into closing know that the buyout isn’t the only option on the table. Cadillac is transitioning to a new incentive program known as Project Pinnacle. It begins on January 1st, 2017 and separates stores into five tiers with incentives offered based almost entirely on sales volume. Obviously such a scheme would hurt dealerships with smaller sales volumes, hence the buyout offer.
If all dealerships accepted Cadillac’s offer to close up shop the cost to the automaker could be near $50,000,000 million. However, de Nysschen said that he hopes there are “zero defectors” despite the enticing offer. “Our target is to have 100 percent of the Cadillac dealers engaged with the Cadillac business,” he said. Dealerships have until November 21st to choose whether or not to take the money and run or accept the new world incentive order that Project Pinnacle is ushering in. Those that do decide to shut down have until the end of 2017 to do so. The good news is that for the majority of these dealerships, Cadillac isn’t the main bread winner. Only six of the 400 dealerships being offered buyouts don’t sell cars from associated GM brands.
Johan de Nysschen also said that for 290 of the dealerships given the option to shut down, Cadillac makes up less than 10% of total business. That being said the CEO also confirmed that of the 474 dealers that have already signed up for Project Pinnacle, 80 came from the buyout pool. It looks like some sales stragglers really believe in the brand’s plan and are willing to make the necessary investments, boutique sales rooms come to mind, in order to move more units and capture bigger incentives. To them we say good luck. Now normally closing dealerships is a sign that things are going bad at a car company. Indeed, spending potentially $50 million to lose sales doesn’t make sense on paper.
But compared to its competitors, Cadillac’s dealership network is ridiculously bloated. Mercedes-Benz boasts 368 dealerships stateside and BMW has 339 locations. Lexus has just 236 dealers in the US. When it comes to sluxury cars more is less, at least when it comes to dealerships. Yes, Cadillac’s goal is to sell more cars and its new incentive program is rewarding dealerships that move cars en masse. But it’s no use sending new models to dealer lots if they’re just going to languish there. Every car that sits unsold puts a dent in Cadillac’s profit and gives the public the perception that said car is a bad one (otherwise it would’ve been sold). It'd be best for the brand if some dealerships just threw in the towel.