Dealer groups open fire on Cadillac retail plan

Some state dealer groups are demanding that Cadillac scrap its controversial new dealer-incentive program, Project Pinnacle, claiming brand chief Johan de Nysschen's vision for transforming the retail network would violate franchise agreements and intentionally cull smaller stores.

In a sharply worded letter to de Nysschen dated Aug. 3 and obtained by Automotive News, seven state dealer association heads say Project Pinnacle would create several tiers of "effective pricing," as Cad-illac funnels a disproportionate amount of money to larger, urban stores that are better able to make pricey investments in services such as complimentary roadside assistance.

Project Pinnacle "picks winners and losers," the letter says. "The winners can make the required investments and prosper. The other dealers face business failure."

In a separate letter to de Nysschen from Automotive Trade Association Executives dated July 22, the group, which represents executives from state and metro dealer associations, says Project Pinnacle's tiered structure might run afoul of state franchise laws that prohibit manufacturers from price discrimination among dealers.

Project Pinnacle has been controversial ever since de Nysschen floated the concept at a national dealer meeting in February, especially among the owners of smaller stores, who could lose their right to stock new Cadillacs under the plan. The opposition from the state associations is the first sign of formal resistance to the plan and could force Cadillac either to make changes or to risk a bruising battle with its dealers. 

Florida dealer attorney Richard Sox said in an email that he believes Project Pinnacle violates franchise law "because a dealer in a lower tier cannot practically meet the facility requirements ...to obtain the higher per-car incentive." 

A Cadillac spokesman confirmed that de Nysschen received the letters and said he was reviewing them and planned to respond. He declined to comment on the issues raised. 

Already, concerns among dealers about how they would fare under the new system prodded Cadillac to push back its start date to Jan. 1 from Oct. 1. The letter from the state associations asks de Nysschen to "rethink this entire program." It was signed by the heads of dealer associations from New Jersey, Connecticut, South Carolina, North Carolina, New Hampshire, Kansas, Wisconsin and metro Cleveland.

While the program is voluntary, it will harm those dealers who don't sign up because they will be at a pricing disadvantage to the dealerships that are getting higher margins for hitting their brand standards, the associations say. 

Under Project Pinnacle, Cadillac has assigned each dealership to a tier. Tier 1 generally will include high-volume metro stores that will be paid the highest new-car margins in exchange for the most stringent brand standards, such as concierge sales and service pickups. Tier 4 dealers would get almost no extra margin for meeting their lighter set of brand standards. Dealers can move to a higher tier if they do enough to meet the higher standards, such as employ more salespeople. 

Tier 5 stores, which generally sell fewer than 100 new Cadillacs annually, would agree not to stock cars any longer but could still sell Cadillacs to customers using a "virtual showroom" approach.

That no-inventory idea also would violate Cadillac's pact with its dealers, the letter from the state associations asserts, citing language from the agreement that says customers "expect the Dealer to have a reasonable quantity and variety of current model motor vehicles in inventory." 

The groups note that many smaller Cadillac dealers are still stinging from General Motors' efforts to take away their franchises around the time of the company's 2009 bankruptcy, making them especially leery of GM's intentions. The ATAE letter cites a recent survey of Cadillac dealers by the National Automobile Dealers Association that found that 87 percent of those polled believe that Project Pinnacle is aimed at eliminating smaller Cadillac stores. 

"There is real apprehension that this program has the look of previous initiatives in GM's history," the ATAE letter says, "which left many dealers on the outside."