Cadillac dealers still are digesting the details of Project Pinnacle, a top-to-bottom overhaul of the system by which Cadillac pays them for new-car sales. Outlined at a February meeting in California, Project Pinnacle is scheduled to take effect this fall, tying dealer compensation to various sales, customer-service and other measures.
The Cadillac National Dealer Council worked to ensure two aspects of the program, said Will Churchill, council chairman: That it's voluntary and that it does not include a stair-step component, the system of awarding dealers tiered bonuses for hitting escalating sales thresholds.
"Stair-step programs result in dealers beating their brains out to sell those extra few cars," said Churchill, 39, dealer principal at Frank Kent Cadillac in Fort Worth, Texas. "This is not that at all."
Many dealers attending the convention likely will be eager to hear more about a new, voluntary facility image program, which is being floated just as the paint has barely dried from renovations done under a previous image program.
In the meantime, Cadillac dealers will be launching two key models this spring: The CT6 sedan that began arriving in showrooms in March, and the XT5 midsize crossover, which arrives in April as a replacement for the SRX.
Churchill spoke with Staff Reporter Mike Colias about Project Pinnacle, the vehicle launches and Cadillac's goals for 2016.
Q: How did 2015 shake out for Cadillac dealers?
A: We had a glut of 2014s at the start of the year. Cadillac spent a lot of money to clear the decks. The good part is that by the end of the year, we finally managed to work our way down to a very small inventory number. Unlike the typical GM, when they often make the same mistake year after year, Cadillac understood the problem and rectified it.
Cadillac President Johan de Nysschen has talked a lot about the quality of business getting better: incentives down, average transaction prices up, profits up. That's good for Cadillac, but has it been good for dealers?
What's been really good for dealers is not having the carryover inventory. There are costs associated with keeping those cars longer. A lot of the operational costs have come down as a result of getting the inventories in line. That then has a positive impact on the bottom line.
Inventories have been cut in half from what they had been averaging. How are dealers adjusting? Are they able to have what the customer wants?
It put us more into what we call "selling into the pipeline." So we're selling cars that are coming in that have just been made. That's a change. Before, we had so many cars on the ground, it was like just going to get a gumball.
Now that you've got shrinking inventories, if you want a particular package that could be obscure, dealers aren't ordering that stuff as much. It forces you to order the most popular packages. It puts us into more of an order basis, and that drives margin up.
The Escalade has carried dealers' profits for a year and a half. How are dealers coping now that transaction prices have leveled off?
The gross profits on Escalades have come down. For a long time, Escalade carried the water. Now that it's slowing down from a profit potential, we have two new units, which always garner higher margins. The XT5 and CT6 should be here to save the day.
I would think XT5 is one of the biggest launches for Cadillac in recent years because the SRX has been the volume leader for a long time.
The SRX continues to sell really well. It's been around seven years, and it still garners plenty of sales volume. That said, we've got a lot of people on their third and fourth SRX. They're ready for a new one. There is a lot of excitement around XT5. We're extending leases so that they can get into their new XT5 and not have to get into another SRX.
What does the CT6 mean for the brand and for dealers?
I really think that's going to be the surprise car. That's not just being drunk on the Cadillac Kool-Aid. It's based on the responses I've been getting from clients and people on the street. They're engaged in the car and talking about it, even more so than the XT5. So yes, it's not intended to be this huge volume piece because of its segment. But I think, eventually, it will surprise the industry and garner more volume than anticipated.