DETROIT -- Cadillac's plan to have nearly half of its dealerships essentially convert to service centers and sell new Caddys through "virtual showrooms" is radical, controversial and perhaps groundbreaking.
It's also completely voluntary.
So why would any of those 412 low-volume Cadillac stores agree to go virtual? After all, they've been happy for decades selling Cadillacs in small numbers, as a lucrative sideline to their busier franchises.
The answer lies in the new payment system that was concurrently presented to hundreds of dealers at recent meetings in California.
Put simply, whatever incremental profit those mom-and-pop operators are earning by selling a few dozen new Cadillacs a year could vanish under the new system.
"The margins will be untenable" for most small dealerships, said one high-volume Cadillac dealer who attended.
Cadillac's Project Pinnacle does away with much of the profit margin now built into new-vehicle sales. For example, it eliminates the holdback, those lump-sum payments made to dealers as a percentage of the sticker price. Floorplan credits are to be reduced. The new system ditches a popular program that pays qualifying dealers up to $700 for each vehicle they order.
Dealers can recover that money -- and potentially more -- on the back end by complying with new standards aimed at elevating the customer experience. They'll have to hit new sales and customer-satisfaction targets. They must offer roadside assistance and courtesy service loaners. They'll need to have a minimum staff of Cadillac salespeople and in some cases a dedicated receptionist.
Officially, even the smallest dealers can qualify for the highest payments. But many of those hoops likely will prove too costly or unworkable for smaller stores. Can a dealership selling 50 or 75 Cadillacs a year afford to keep three or five sales staffers? Can a small showroom packed with Chevys afford to keep multiple Cadillacs on display?