EV-wary dealers offered upward of $500,000 to drop Cadillac

DETROIT — Cadillac dealers who don't see a place for themselves in the luxury brand's all-electric future can walk away with more than half a million dollars instead.

General Motors last week showed the breadth of its commitment to electric vehicles as the future of Cadillac and its other brands, boosting its EV and autonomy budget by 35 percent through 2025. Cadillac's first full EV, the Lyriq, will launch in early 2022, nine months sooner than initially planned, and the brand expects to be selling only EVs by 2030, as long as GM feels the market is ready.

Some dealers, on the other hand, aren't ready to make that shift — or to spend at least $200,000 on the chargers, tooling and training that GM is requiring. They have until Nov. 30 to decide whether they'd rather just get out instead.

"We wanted to move fast and make sure dealers are ready for the acceleration," Mahmoud Samara, vice president of Cadillac North America, told Automotive News. "This is purely an option for those dealers who feel the EV journey is not suitable for them."

Many offers range from $300,000 to upward of $500,000, according to people familiar with the terms. Cadillac declined to disclose the dollar amounts and other terms, and dealers who accept a buyout must agree not to discuss it publicly.

The payment range marks a big increase from the packages Cadillac offered to its 400 lowest-volume retailers in 2016 under then-President Johan de Nysschen, who bluntly said the brand had "too many dealers" relative to competitors.

This time around, all 880 U.S. Cadillac dealers are eligible, though management made formal offers mainly to dealers who expressed hesitation about selling EVs as soon as GM wants them to. Samara said he expects most dealers to go forward with EV sales.

"We had discussions with all the dealers around what is our EV journey, how are we going to get there? It was a very open, transparent discussion — allowing all dealers to understand and buy in," Samara said.

Dealer lawyers and consultants said dealers who take the buyout can sell new Cadillacs through 2021 and can access the brand's used-vehicle auction through 2024, unless other arrangements have been made.

Many smaller dealers, after years of feeling like GM wanted them gone, are no longer as eager to stand firm as the costly shift to EVs looms, said Stuart McCallum, who leads the automotive consulting and accounting practice for Withum accounting firm in Princeton, N.J. Some just hope to negotiate a more lucrative deal before agreeing to give up their franchise, he said.

"They're looking at this as a godsend almost," McCallum said. "There is wiggle room in the offer. It's not a take-it-or-leave-it."

For dealers who sell few Cadillacs a month, he said, a $300,000 to $400,000 payment might be equal to five to 10 years' worth of new-vehicle profit.

Cadillac has been willing to sweeten some offers, said Shawn Mercer, partner at Bass Sox Mercer law firm in Tallahassee, Fla. His clients have been split on the offers, and some remain undecided.

"Particularly after some negotiation, General Motors generally has been willing to raise their initial offer," Mercer said. "Enough money is being offered that it is clearly getting the attention of a lot of the smaller dealers."

Cadillac has long been trying to condense its dealer network. In 2016, when rolling out its Project Pinnacle incentive program, Cadillac offered to pay low-volume dealers $100,000 to $180,000 to quit. Dealers weren't pressured to take the deals, and few accepted.

The latest offers "appear to be much more aggressive. It signals GM's commitment to reducing the dealer count," Mercer said. "However, it is still voluntary. And dealers that have turned down the offer, there have not been any ill feelings or negative consequences."

Samara declined to say how many dealers have accepted a buyout so far.

Despite the potential for a generous payout, some dealers are considering the long-term losses they would face outside the new-vehicle department as a consequence, said Bob Glaser, president of the North Carolina Automobile Dealers Association.

The plan allows Cadillac to "thin the herd," he said. "But it's really a business decision that the dealer has to make. You've got to quantify the fixed ops. You have to capitalize that revenue stream coming from your current Cadillac business."

A franchise is worth much more than $300,000 to $500,000, said Len Bellavia, founding partner of Bellavia Blatt law firm in Mineola, N.Y.

"If I'm 50 years old and planned on keeping [the dealership] for 20 more years and making half a million a year, how does $300,000 to $500,000 make me whole?" he said. "Any franchise on its worst day could be worth over a million dollars, unrelated to how many cars the dealer is selling."

Some dealers may have to spend far beyond Cadillac's estimated $200,000 to ready their stores to sell and service EVs. Some stores would need expensive renovations to create wider service bays and meet other infrastructure requirements, Bellavia said.

Even dealers ready to make the leap acknowledge a lot of adjustments will be needed. "I will have to rewrite the business plan for the store to be profitable," said a Virginia dealer who asked not to be identified. The dealer already committed to making the investments GM is requiring and thus didn't get a formal buyout offer.

Cadillac isn't aiming for a particular number of dealers to take buyouts, Samara said. It worked with its national dealer council to formulate the deals, he said.

"There was a lot of good intention and work and deliberate approach towards this," Samara said. "We feel good about the plans that we've put in place and the progress that has been made so far."