DETROIT -- Cadillac is offering nearly 400 of its smaller dealers buyouts of up to $180,000 to give up their franchise if they decide they don't want to spend the money necessary to upgrade their showrooms and adapt to the brand's new sales and dealer incentive program unveiled this year.
The decision to offer the buyouts comes amid concerns from some dealers about Project Pinnacle — a sweeping set of new pricing initiatives set to take place next year as part of Cadillac President Johan de Nysschen's plan to overhaul and elevate the brand.
That program has generated complaints from some dealer associations. The California New Car Dealers Association, for example, sent a letter to GM CEO Mary Barra on Sept. 2 saying it is concerned Project Pinnacle might violate California law and challenging Cadillac's contention that the program is voluntary.
"(The association) encourages GM and Cadillac to seriously consider delaying implementation of this program in California in order to more adequately address overall concerns as well as those specific to the unique circumstances of California Cadillac dealerships," said Brian Maas, president of the California New Car Dealers Association, in the letter.
On Friday, Cadillac said it developed its "transition assistance" program in part as a response to concerns from some who might not want to remain a Cadillac dealer.
The buyout offers start at $100,000 and top out at $180,000. All the dealers eligible sold fewer than 50 new Cadillacs to retail customers in 2015, said Andrew Lipman, a spokesman for Cadillac. Those dealers represent 43% of the brand’s 925 U.S. dealerships but only about 9% of its sales last year.
"This is designed directly in response to smaller dealers' request for assistance," Lipman said.
Dealers must decide by Nov. 21 if they are interested in the financial assistance package, Lipman said.
Maas said he knew Cadillac was working on a buyout program, but was surprised at how low the offers will be.
"If it's a California dealer ... chances are real good the facility alone is worth more than that," Maas said.
Dealers who don't think the offer adequately reflects the value of their Cadillac franchise don't have to accept it, Lipman said.
"This is completely voluntary," Lipman said. "This is an option for them."
De Nysschen has said Cadillac is not at war with its dealers and has said the project was developed in consultation with key Cadillac dealers as well as Cadillac's dealer council.
Automakers have often launched initiatives designed to cut back on the size of their dealership base if sales volume is too low. The theory is that dealers need to sell a certain number of vehicles to be profitable and maintain the brand's desired customer service levels. Ford went through a similar process several years ago with its Lincoln brand. In 2010, there were 1,187 Lincoln dealers in the U.S., and today there are about 900.
De Nysschen unveiled Project Pinnacle earlier this year. The new dealership standards and incentives will overhaul the way Cadillac distributes incentives to its dealers and is designed to provide dealers ways to make money in addition to selling cars.
Cadillac plans to separate its dealerships into five tiers based predominately on sales volume. Larger dealers can earn the biggest incentives by meeting the most stringent standards, while the smallest stores would have more relaxed requirements.
In tier five, designed for dealers who sell the lowest volume, the dealer would no longer carry any inventory, according to the Wall Street Journal. Instead, those dealers would become "virtual showrooms," and customers would view cars with virtual reality goggles and then order the vehicle, according to the report.
The idea behind the virtual dealership is that it would give dealers who sell only a few Cadillacs the ability to continue to offer the Cadillac brand with much lower operational costs.
The program will go into effect on Jan. 1, and dealers have until Oct. 1 to pick the tier they will be a part of.
Maas said the financial assistance program might an option for Cadillac's smallest dealers. Many dealers above the 50-vehicle-per-year threshold are still struggling to decide which tier of Project Pinnacle they will join.
"The challenge I think is for those dealers that are sort of in the middle, who are still trying to decide what to do," he said. "I am not sure this announcement helps them a lot."
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