The average U.S. Cadillac dealer sold 176 new vehicles last year, while BMW and Mercedes-Benz stores sold more than 900 apiece.
By the end of next year, almost 1 in 5 Cadillac dealers are planning to give up their franchise, with hefty buyout payments in hand. But Cadillac will still have about twice as many stores as its German rivals.
That may be why, two weeks after the deadline to accept a buyout, General Motors was still negotiating with some dealers who were on the fence about sticking with Cadillac as it aims for an all-electric lineup around the end of this decade.
"They are so over-dealered compared to their competitors that it's going to take far more than 20 percent of the stores to close for the remaining Cadillac dealers to become more competitive with their luxury peers," said Alan Haig, president of Haig Partners, a buy-sell advisory firm in Fort Lauderdale, Fla.
A nearly 20 percent reduction won't necessarily raise sales or profitability for remaining dealers by a similar amount, as most of those quitting likely have low-volume stores. "But it's probably the starting point to be competitive head-to-head" with other luxury brands, Haig said.
For any brand, the closure of about 150 dealers would be significant. However, given the size of the buyouts — generally $300,000 to $500,000, but in some cases much more — and the six-figure investments Cadillac is requiring for dealers to become EV-ready, it might seem surprising more aren't walking away.
The buyout terms prohibit dealers who even discussed one with GM from talking about it publicly. Ted Smith, president of the Florida Automobile Dealers Association, hasn't heard from anyone who is taking the money but said most dealers do want to sell and service EVs.
"I've never met a car dealer that didn't want to sell a car. I don't care if it's powered by a squirrel and a rubber band," Smith said. "My dealers are definitely pro-EV, and I'm so tired of hearing that they are not. They are motivated and prepared to sell vehicles that the customer wants."
Cadillac will give dealers who take a buyout a quarter of their cash upfront, with the balance paid after the franchise is terminated and other requirements are met, according to people familiar with the terms. Most dealers can continue selling new Cadillacs until the end of next year, a few months before the 2022 Lyriq electric crossover hits the market. They can sell used Cadillacs through 2024, unless their particular agreement states otherwise.
Some dealers, predominantly those with large stores, said they were unaware of the buyouts, which were first reported last month by Automotive News.
"There were many Cadillac dealers that had no idea this was even happening until I called them to ask, 'So, have you gotten your offer? What does it look like?' And their answer is, 'What offer?' They had no idea," said Stuart McCallum, who leads the automotive consulting and accounting practice for Withum accounting firm in Princeton, N.J.
Cadillac first contacted at least one dealer about the option Monday, Dec. 7, a week after the Nov. 30 acceptance deadline, according to a lawyer who asked not to be identified.