Cadillac store plan in jeopardy
Arbitration could thwart GM focus on metro markets
WASHINGTON -- General Motors Co.'s apparent strategy to bring Cadillac's dealership network more in line with its foreign competitors could be undermined by the arbitration process.
If arbitrators rule in favor of many Cadillac dealerships, it would leave GM with far more small-town showrooms than it wants.
GM has been quietly pushing Cadillac sales in large metropolitan areas and shedding dealerships in less populated regions, dealer lawyers and consultants said.
Cadillac dealerships will file a disproportionate share of GM's arbitration claims because most were targeted for elimination as a result of their small-town location rather than their performance, dealer lawyers said.
As the midnight Jan. 25 filing deadline loomed for rejected dealerships, hundreds of Cadillac showrooms prepared to give notice of their intent to seek reinstatement, the lawyers said.
"It seems like the GM strategy has been to align Cadillac to look more like BMW, Mercedes-Benz or Lexus in terms of focusing dealerships on urban areas on the east and west coasts," said Scott Watkins, senior consultant at Anderson Economic Group in East Lansing, Mich.
Some rejected Cadillac dealerships have hired the consulting firm to testify during the arbitration process on the economic viability of their stores.
Watkins said he has spoken with eight rejected Cadillac dealerships that are current or potential Anderson clients.
GM said it wants to cut its Cadillac franchises by two-thirds -- from 1,422 on Jan. 1, 2009, to about 500 by the end of this year.
Those 922 Cadillac dealerships account for nearly half the 2,000 GM franchises marked for termination by October.
GM declined detailed comment about its Cadillac dealership strategy, its planned cuts or its expectations for arbitration.
GM told many rejected Cadillac dealerships this month that the main criterion they failed to meet was "networking viability and throughput issues," the lawyers said.
"It means GM wanted to sell more cars through fewer dealers," said Anthony Giardini, general counsel of the Committee to Restore Dealer Rights, a group that represents rejected dealerships.
"It has nothing to do with performance. GM is saying we just don't want to be in that market."
In contrast, most of GM's non-Cadillac dealerships were given performance-related criteria, such as "retail sales index" or "dealer performance score," as bases for their rejection, said lawyer Mike Charapp of McLean, Va.
One small-town Cadillac dealer, Charles Spadafora Jr. of Indiana, Pa., said his showroom ranked in the top 10 percent in the state according to GM's performance measures including sales, capital and customer satisfaction.
GM's termination of his franchise, as well as that of a neighboring Cadillac showroom, left the closest Cadillac dealership almost an hour's drive away, he said.
"A number of our customers told us they wouldn't buy another Cadillac because they didn't want to travel at least 45 minutes to get it serviced every time something goes wrong," Spadafora said.
Spadafora, 34, said the Cadillac dealership was started by his grandfather, Cecil, in 1947. When GM told him of his termination last year, Spadafora said his first thought was of his grandfather.
GM told Spadafora, who is filing for arbitration, that his criterion for rejection was "networking viability and throughput issues."
The Jan. 25 filing deadline was set in a law signed by President Barack Obama last month establishing arbitration for rejected GM and Chrysler Group dealerships.
More than 1,000 targeted showrooms out of a total of 2,789 are likely to seek arbitration, dealer lawyers estimate.
Binding arbitration decisions are due in June.
"We are committed to participating in a professional, effective arbitration process for the dealers from each of our four brands that received complete or partial wind-down agreements and want to file for reinstatement under the federal legislation that is in place," GM spokeswoman Ryndee Carney said.
Some dealer lawyers contend GM would be helped by a restoration of eliminated Cadillac franchises.
Said Charapp: "The decision to have Cadillac abandon small-city and town markets where it dominated as a luxury brand to concentrate on large metros where it does not is the automotive equivalent of New Coke."