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Cadillac offering buyouts to 400 smaller U.S. dealers

The buyout offers start at $100,000 and have a median value of $120,000, Johan de Nysschen said.

Cadillac is offering its 400 smallest U.S. dealers as much as $180,000 if they would rather give up their franchise than make the investment necessary to meet a host of new standards being imposed by the brand.

But Cadillac President Johan de Nysschen, while acknowledging that Cadillac has too many dealers relative to its chief rivals, said he is not trying to shed underperforming retailers. He said the transition assistance program announced to dealers today is meant simply as an alternative for those balking at his incentive program known as Project Pinnacle.

“Our target is zero” defectors, de Nysschen told Automotive News. “Our target is to have 100 percent of the Cadillac dealers engaged with the Cadillac business.”

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 percent of the brand’s 925 U.S. dealerships but only about 9 percent of its sales last year.

All but six of the 400 have other General Motors franchises. For 290, Cadillac represents less than 10 percent of their overall business, de Nysschen said.

They will have until Nov. 21 to decide whether to take the money and wind down by the end of 2017 or to remain with the brand as it tries to catapult itself back into the top tier of luxury brands.

“This is going to be a long, arduous and challenging journey and certainly not one for the faint-hearted,” said de Nysschen, whom GM hired to revitalize Cadillac in 2014. “Some people may choose to make life a little easier than what lies ahead.”

Project Pinnacle, which begins Jan. 1, overhauls how Cadillac distributes incentives to its dealers by separating stores into five tiers based predominately on sales volume. Larger stores can earn the biggest incentives by meeting the most stringent standards, while the smallest stores would have more relaxed requirements but be barred from stocking vehicles on site, instead having customers order vehicles through a virtual showroom approach.

State objections

Dealer associations in California, Virginia and other states have objected to the plan, arguing that it would violate franchise laws and be unfair to small dealers. Cadillac says the program is voluntary, but the associations contend that nonparticipating dealerships would be at a severe disadvantage to competitors who receive the incentives and are thus able to offer customers lower prices.

Beyond delaying the enrollment deadline to Sept. 30 to let dealers get a better understanding first, de Nysschen has firmly stood by the program, which he says is aimed at creating a customer experience more befitting a luxury brand. He said accusations that Cadillac would be breaking various franchise laws are “based on misinterpretation.”

De Nysschen said that as of Thursday, 474 dealers -- representing 83 percent of Cadillac’s sales volume -- had enrolled in Project Pinnacle, including 80 that would be eligible for the wind-down incentive.

“Every single Cadillac dealer will have the potential to earn significantly higher profits than they do today,” he said. “I continue to be confident that we have a very feasible, dealer-friendly and customer-friendly program which certainly will be to the benefit of the brand.”

Cadillac plans to contact dealers eligible for the payout in October. The amount of money they are offered is based on a formula accounting for their size and performance.

De Nysschen declined to discuss Cadillac’s internal estimates of how many dealers would agree to the payout or the cost to the company. Based on the median figure of $120,000 he provided, the maximum cost would be about $50 million.

The loss of a large number of dealerships would hurt Cadillac’s sales initially, de Nysschen said, but he expressed confidence that those remaining would make up for the lost volume in the long term.

Cadillac was the nation’s leader in luxury-brand sales for decades until 1997. Since 1999, the title has been owned by either Lexus, BMW or Mercedes-Benz.  

Cadillac now ranks No. 6  among luxury brands , and its U.S. sales have fallen 6.2 percent through August of this year.

You can reach Nick Bunkley at nbunkley@crain.com -- Follow Nick on Twitter: @nickbunkley

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