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Scoundreller

> Accept a buyout offer to exit from the brand or spend roughly $200,000 on dealership upgrades

> The buyout offers ranged from around $300,000 to more than $1 million

Seems like slow-moving Cadillac dealerships held out and got a good opportunity to leave.

Possibly Cadillac won too by forcing down a lower buyout price on members that they didn’t want to keep either?

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“Declining brand dealerships accept generous buyout offer”

Edit: Auto dealership businesses are traditionally lucrative (service revenue, mostly, based on my conversations with franchise owners), and if $200k in capex wasn’t worth it (based on forecasted future revenue and profit), I think that says volumes about the future of the Cadillac brand.

You have exposed the problem with electric cars and dealership though. Electric cars do not need as much service, ALOT LESS infact. Thus the dealership will have to get more revenue from the initial sale instead of reoccurring service revenue.

If the brand/dealership is already struggling switching to electrics is likely going to be a negative revenue hit for any dealership that survives on service revenue

Agreed! All dealerships are dead long term (with possible exits/buyouts offered by manufacturers for service center/gallery conversions to match what Tesla has). Just like layoffs come in waves in struggling enterprises, this is just the first salvo.

Well regulations will ensure dealerships are around for a long long time to come. In most states it is illegal for the major companies (Ford, GM, Toyota, Honda, etc) to sell direct to the public, once they start a dealer network that is how it has to be for all time. Tesla got around that because they were a new company with no dealer network, even then in some states laws were "updated" to prohibit direct sales.

I see zero reason for such laws to be in the interest of the general welfare. Break up market dynamics to introduce mandated middlepeople? So dumb.

I wonder if the thinking was that dealers have more buying power since they’re purchasing multiple cars from the manufacturer at once, so they are on more equal footing when it comes to negotiating with GM and Ford. Then, since there are multiple dealerships selling the same cars, they can compete with each other on price. Thus, in theory, allowing customers to purchase cars at a price closer to the “wholesale” price.

Of course, once the systems exist, the dealers will lobby for their continued existence.

If dealers really have that negotiation edge they should be able to stay relevant with market dynamics alone, instead of lobbying to prevent direct sales.

Unless the manufacturers undercut the dealers until they're out of business, then raise prices.

Apple still has dealer network with direct sell. But there are so many can’t imagine just manufactures.

The history of why dealership came to be is an interesting one, and why the laws was originally passed was in some way valid

However today dealerships collectively enjoy HUGE state level political power, as in most states the bulk of sales tax revenue is directly tied to the resale of cars, thus the dealers of said cars have out-sized pull in state governments

Being a large source of tax revenue does not imply political power. Campaign contributions do.

Actually, it does. If a large source of tax revenue vanishes, the legislators will need to raise taxes on someone else to make up for it. They would rather not do that, given a choice, because of all the wailing and gnashing of teeth that will result from the people whose taxes go up.

Legislators aren't especially influenced by big tax contributors and the same taxes would be paid by the manufacturer-owned stores anyway. It's just that once the dealer network is created they become a large and highly motivated special interest group. The dozens or hundreds of people that work at each dealership and their families have mostly outnumbered the voters who care strongly about the ability to buy direct, but this has been changing lately.

Dealerships should remake themselves as premium service centers. Taking a Lexus in for service is a pleasure. You can sit in the business center while chomping on "free" donuts and coffee.

Cadillac did try that, they called it the "Pinnacle Project", but the dealers (mostly the smaller ones) didn't want to do it.

I have no idea why you're being downvoted. My dad used to run service departments for a dealer chain, about 15 dealerships. This is one of the things he did. He was also very process oriented and was able to 'money motivate' employees. He took every dealership he worked with from negative or low yearly income to substantially higher yearly income and everything he touched grew customer base.

The VW dealer I bought my e-golf from has been harassing me to do my yearly oil change. And each time I have to tell them that no, my car doesn't need an oil change. They still insist on a yearly "service".

I'm sure these dealerships will invent things that need to be serviced yearly.

Having done a a lot of consulting for car dealerships, I’d wager that it’s more likely that their appointment reminder system is held together by duct tape and baling twine, and getting it to schedule smarter based on the data in the dealer management system is so complicated that it’s probably using default values from when it was first set up 8 years ago.

Oof, so true. Dealer software is stuck in the 90s.

> ...I’d wager that it’s more likely that their appointment reminder system is held together by duct tape and baling twine...

The conventional car industry has coming up on two decades of observing what Tesla did right with their software and customer service experience, and what they screwed up. Tesla is still very vulnerable (QC, capacity, and infrastructure), and that window is closing fast. If conventional car dealerships become economic roadkill in the future, they only have themselves to blame.

The big issue with the traditional car industry is how fragmented it is. OEMs, third party websites, and individual dealerships are not only on different tech stacks, they’re financially independent companies that by and large can’t be forced to work together. It’s not uncommon for OEMs to pay dealerships for data through third party websites, since they lack the ability to share certain types of data directly.

One of Tesla’s advantages is unquestionably their more centralized structure. They can make changes that other OEMs can’t.

It's not engine oil, they want you to come in for a battery oil change.

Headlight fluid too I'm sure.

Clearly people missed the joke.

The lesson here is that rewording a joke doesn't always hit.

Just don’t skip the Blinker Fluid checkups

Or maybe we need smaller or fewer dealerships.

What does it say? Isn't the lower service cost a feather in Tesla's cap when they come up? Who loses those dollars when GM sells an electric Cadillac?

Dealerships are left out in the cold without service dollars.

You said it said something about the brand. Dealers aren't the brand.

Dealers accepting the buyout are them bailing on the brand due to perceived lower long term value of said brand (versus the investment being asked of them). My apologies I wasn’t more clear upfront.

The thesis isn’t just less service required electric vehicles, but Cadillac brand loyalty dying off with older customers (Cadillac has the oldest customer base in the auto industry). Similar situation with Harley Davidson [1].

[1] https://www.reuters.com/article/us-harley-davidson-electricb... (Harley struggles to fire up new generation of riders with electric bike debut)

Cadillac looked dead 25 years ago, too, and managed to rejuvenate the brand with the CTS and Escalade. I wouldn't count them out yet.

It's a small transaction, and GM is on the other side of it, spending money to push the brand towards electric instead of letting it stagnate. Are 150 (likely small volume) dealers a great bellwether?

You could be right. Time will tell as more jurisdictions enact combustion vehicle sales bans and brands transition to electric or die. Single data points aren’t as helpful as momentum signal.

> Are 150 (likely small volume) dealers a great bellwether?

That 150 is 16% of 924 dealerships [1]. About another 30% also sell fewer than a handful of Cadillacs a month.

[1] https://gmauthority.com/blog/2018/01/nearly-half-of-cadillac...

Sometimes the local population can only see into the local future.

Unfortunately, those decisions impact the local grandchildren, who will live in the long-distance future.

It's refreshing to see a singular board room decision lead to a better long-distance future.

Yeah I wouldn’t read too much into this. It’s good for the brand to cull the heard of non-believers.

First, it's a "herd".

Second, 17% is a lot of dealerships. I mean, I presume that these are the dealerships that aren't selling all that many cars, but... what total sales volume did they account for. 5%? 10%? Does Cadillac want to lose that much of their total sales? Do they want to pay money to lose that much of their total sales?

And, really, pay $300,000 for a dealership to go away, because the dealership wouldn't pay $200,000 for a charging station. Why not, you know, put up the $200,000, and keep the dealership?

Cadillac is a sub brand of GM, and most of these dealers probably did small volume on Cadillacs while their bread and butter was GM.

For instance I consulted a group of Ford dealerships, only one of which had a Lincoln franchise. To keep the Lincoln brand they needed to do stuff like have a separate branded entrance and minumum floorspace for the Lincoln side of things, etc. At some point it’s not worth it if 95% of your revenue comes from selling the mainline brand.

I wonder if, at some point, a brand will subsidize those costs just to keep a foot in a market (if they fail to take the bait and cover the cost themselves).

They'd have to pay $200,000 to all dealerships, not just the ones who wanted to leave. Plus I am sure that equipment takes up land/space, and reduces the number of service bays. And requires trained staff.

$176 million is different than $20 million. And that's not the only cost the dealers are incurring including reduced revenue from land that could be used to sell cars.

Because they want to get rid of dealerships. ;)

And, really, pay $300,000 for a dealership to go away, because the dealership wouldn't pay $200,000 for a charging station.

Is a franchise something that a dealer has to purchase up front? If so, maybe it's sort of like property, and Cadillac has to buy it back from them? I believe at least the first part is how some e.g. restaurant franchises work.

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