Dealers deliver mandate to Cadillac

DETROIT -- Nearly all of Cadillac's 925 U.S. dealerships signed up for its Project Pinnacle incentive program, giving brand chief Johan de Nysschen a strong mandate to revamp the retail network, even as significant opposition lingers under the surface.

Dan Creed, Cadillac's vice president of sales operations, said dealers representing 98.7 percent of the brand's retail volume enrolled by the Sept. 30 deadline. The program, which changes the way dealers are paid for achieving sales targets and establishes tiers of performance requirements that vary depending on the dealership's size, begins Jan. 1.

"With a dealer network as large as ours, it's a staggering figure," Creed told Automotive News.

Creed wouldn't reveal exactly how many dealerships didn't enroll but said nearly all of them are "very small stores." Cadillac sold 106,180 retail units in the first nine months of 2016, so the holdouts collectively account for only about 150 vehicles a month. 

While the enrollment figure creates the appearance of near unanimity about the program, it remains to be seen whether simmering discontent will turn into a public backlash after dealerships start feeling an effect on their bottom line. Trade associations in California, Ohio, Virginia and other states have publicly criticized the program in recent months. 

Brian Maas, president of the California New Car Dealers Association, said dealers he spoke with about Project Pinnacle felt like they had to sign up to avoid putting their businesses at a huge disadvantage. 

"It sounds like a Soviet election to me. You're all required to show up and vote, but we only have one candidate," Maas said. "I think there are lots of Cadillac dealers in California and across the country who would say, "We did it under protest.'" 

De Nysschen, in an Oct. 4 letter to Maas, said Project Pinnacle demands changes that would bring its retailer network "closer to the standards luxury customers are accustomed to from our competitors." He dismissed Maas' concerns that the program violates some state laws and hurts smaller dealerships as unfounded and rejected Maas' call to delay its implementation.

The program divides most dealerships into four tiers based on their sales volume, though dealers can choose to move to a higher tier, with more stringent standards, to qualify for larger incentive payments. Dealerships that sell fewer than about 100 vehicles a year can choose a fifth tier that carries the lowest standards but also bars them from stocking vehicles on site; customers of a Tier 5 dealership would place orders using "virtual showroom" technology instead. 

Creed said some dealerships did choose Tier 5, which has an annual enrollment fee of $250. The fee for the other tiers ranges from $7,500 to $35,000, according to a program guide Cadillac distributed in June. 

He said "significantly more than half" of enrollees chose to move to a higher tier than where their current sales volume would put them. 

The program won't have financial implications for dealers until the start of 2017, but the rest of this year will offer them a "full simulation" of how it works, Creed said. Dealers can go online to get daily updates on the incentives they would be earning based on their performance. 

He said Cadillac management is eager to address dealers' and state associations' concerns. "If there's a way for us to be able to work through them positively we're all for it," Creed said. "We have been listening and we'll continue to do so." 

Meanwhile, Cadillac's 400 smallest dealerships still have until Nov. 21 to decide whether they want to cut ties with the brand in exchange for a payout of up to $180,000; those that already enrolled in Project Pinnacle can still elect a buyout and get their fee refunded. 

Cadillac announced the buyout offers Sept. 23 and plans one-on-one discussions with each eligible dealership starting later this month.