Cadillac: Affordability a bigger concern than inventory

After two years of pandemic and supply chain disruptions that curtailed vehicle production, Inder Dosanjh said he doesn't think inventory will be dealers' top concern this year.

Dosanjh, CEO of Dosanjh Family Auto Group in the San Francisco Bay Area, with four Cadillac dealerships, said supply numbers are improving and going in the right direction. That's good news for dealers, he said, who have been challenged by low supply.

Yet dealers also have learned how to handle times when vehicles aren't plentiful, said Dosanjh, also chairman of the Cadillac National Dealer Council. While rising supply on the ground is good, he added, he personally does not want to return to the levels before the pandemic began.

The supply crunch may be easing, but rising interest rates and transaction prices are making affordability more of a concern across the industry. Cadillac leaders are monitoring the situation closely, Dosanjh said, but to this point interest rates have not been a significant challenge.

Cadillac has provided some lease support, he said, "and if there needs to be more, I think they're standing by."

Dosanjh, 63, talked with Staff Reporter Lindsay VanHulle about inventory, electrification, fixed operations and affordability. Here are edited excerpts.

Q: How close are Cadillac's production and inventory levels to coming back in line with demand? What do dealers expect in terms of inventory and days' supply this year?

A: I think the chip problem is kind of behind us a little bit. There might be some other supply chain issues, but I think that inventory's already a bit better.

I don't have exact numbers, but it's higher than what we had in '22. So I think we're already going in the right direction. I don't think that inventory will be the main concern in 2023.

How are Cadillac dealers coping with the inventory constraints?

It's been very tough for all the dealers as far as inventory goes, but as you know, we have learned a lot how to deal with low inventory. As you can see, the profit margins are much higher, and I'm not sure if we ever want to go to pre-COVID inventory levels. In fact, I know I don't want to go to pre-COVID inventory levels.

How are Cadillac dealers handling new-vehicle pricing? What is the latest that Cadillac is telling dealers about pricing and markups? I don't think there's consistency. I think that depends on the dealer. Certain dealers do the addendum stickers, and certain dealers have a policy not to do the addendum stickers.

The factory can't really tell dealers how to do their pricing. Of course they don't want the markup, but they can't really force dealers.

How is Cadillac navigating vehicle affordability concerns?

On our calls, that's a major concern. We're asking that to Cadillac, and Cadillac is monitoring very close, looking at other manufacturers and seeing where the demand is, what the market share is.

They're monitoring everything very closely.

How are Cadillac dealerships performing from a profitability standpoint? How sustainable are current vehicle margins and profitability levels as inventory levels improve?

2022 has been really a great year, and '21 has been a great year. 2023, I think it might be a bit softer than 2022. We're hoping we can get close to 2022 in 2023.

I really think that interest rates have something to do with it, and we have more supply now, so demand's less.

How have Cadillac's sales incentives changed during this time of decreased production and inventory?

Up to this point, we really didn't need it, but going forward, I think we might as the demand softens a little bit and the production increases and the rise of the interest rate. There definitely will be more lease support from the manufacturers, not just Cadillac.

Is Cadillac adequately advising and providing resources for its dealers on how to prepare for the rollout of electric vehicles?

I think Cadillac and GM are doing a great job. They're much further ahead than other manufacturers as far as installing the chargers, the training. The Lyriq training was just incredible. Our sales staff liked it, our managers liked it, and everybody really, really had an incredible process. Training was amazing.

Has Cadillac imposed new requirements or sales standards related to selling electric vehicles now or in the future? If so, what do dealers think about having a separate set of policies?

You have to have the training; you have to have the chargers.

One thing Cadillac did, they were very clear: "Look, this is where we're going, this is what our goal is, and if you want to be a Cadillac dealer, this is what you need to do." The dealers who didn't want to meet that demand, they got bought out. Dealers who are in the brand, they know what the requirements are. I think such a clarity from Cadillac from the start really helped the whole process.

What is Cadillac's position on subscription services for capabilities built into the vehicle or that can be enabled using software after purchase? What do Cadillac dealers think the dealership's role/piece of that business should be?

I just want to be clear about that, all of those conversations are very early stage.

Definitely, every indication we have from the manufacturer is that dealers will play some sort of role in it.Those communications are very, very clear and very open with Cadillac and General Motors.

For example, I drive a [Chevrolet] Bolt, and the other day it said, go to your radio and press this button so we can download the navigation system to you.

My Bolt didn't have a navigation system. Then I turned my radio on, sure enough, I had to press this button that I agreed with everything; all of a sudden I had a navigation system. So I think that's going to be big, and General Motors really wants the dealers to play a role in it.

What is Cadillac's position on over- the-air updates for servicing vehicles?

I think it's still in early stages.

What do Cadillac dealers think about the possibility of changes to the traditional franchise model?

At this point, what we're hearing from manufacturers and what their thought processes are, they want to stick with the dealer network. Obviously, there's certain small changes coming, the margins and all of the stuff. I think dealers, they're not really that much concerned about that at this point.

After an industrywide decline in leasing, what is Cadillac's plan to promote leasing in 2023?

Leasing is a very crucial part of the luxury brand. Yes, it has declined because of the inventory shortage, but I think we're getting to the point where we're going to have to definitely have some sort of lease support. And they already have some lease support, but to what level it has to go to, that's being determined right now as we speak. There are lots of discussions between the dealer council and the Cadillac team. A lot of talks and a lot of time is being spent on that.

How are rising interest rates affecting the sale and financing of new or used vehicles at Cadillac dealerships?

It really hasn't had that much effect on it up to this point, but if the interest rates keep going up, definitely it would have some sort of effect.

What can Cadillac or General Motors' financing unit do to help dealers sell cars in the face of rising interest rates?

If the interest rates go up and cause a concern, then I'm sure we will have lease support, we will have interest rate support. Cadillac has given a certain amount of interest rate support on certain cars. This thing has been monitored very, very, very closely.

Are current used-car market conditions causing dealers to revise the strategies they used in 2021 for acquiring and selling used cars?

Yes. And what that strategy is, nobody knows yet. We're trying to figure that out. Those are the conversations we have every day.

If dealers reduced their reliance on wholesale auctions last year in favor of other acquisition channels, are they now turning back to auctions in search of cheaper inventory?

Yeah, I think auctions always will be there. It's just a little shortage of inventory, that's why the auction sales are off, but the auction is a crucial part of our overall business process.

We never went away from the auction.

Will dealers keep the new sourcing channels going forward?

Yes, definitely. They'll not only stick with it, but it'll probably increase more. It'll probably be a bigger part of our business.

What is Cadillac doing to promote sales of used vehicles, including with its certified pre-owned program? Has Cadillac launched or proposed an online platform for the sale of used vehicles?

[CarBravo has] been piloted at certain dealers. We're not really part of the pilot dealers at this point. We are part of the next wave.

How are Cadillac and GM looking at their own branded digital retailing platform for electric vehicles, powered by Tekion? How has the brand approached dealer adoption?

All our stores that sell the EVs are on it.

It's a really great experience for the customer. I don't think we'll have 100 percent of our customers that will want to go to online purchase, and there's going to be certain customers that stick with the traditional way. There's going to be certain customers that start the DRP, then halfway through, they go back to the traditional way. And there's going to be certain customers who want to complete their transaction on the DRP, and this tool allows you to do that.

How are Cadillac dealerships' fixed operations performing? Are there concerns in certain areas, and how are dealers and Cadillac navigating concerns?

Our business has increased. The average age of a car has increased out there, right, so our fixed operations has increased.

Finding technicians is always a concern.

Has there been any change in facility image programs by Cadillac? Should the programs' requirements around facility size/amenities be reduced or changed in light of the shift to online retailing, lower inventory levels, the coming EV age or uncertainties about the future of the franchise model?

This new image program is still rolling out. It's pretty digital-friendly. When you walk in the store, it gives you an Apple store feeling.

Beyond that, there haven't been really discussions [about] reducing the footprint, that kind of stuff. Those discussions really haven't taken place yet.

What's missing in the product lineup?

We have such a hot product right now. The Escalade demand is incredible. There are other brands who try to compete with it.

CT5 demand is really good. Our CT5 Blackwing is incredible. Lyriq is just — oh, my God, Lyriq is just an incredible car. I think we're going to attract a lot of Tesla buyers. And the future lineup, the electric lineup, is just incredible. We're in the right spot. It's a good time to be a Cadillac dealer.