By Mike Colias
About 150 General Motors Co. dealers have decided to part ways
with Cadillac, rather than invest in costly upgrades required to
sell electric cars, according to people familiar with the plans,
indicating some retailers are skeptical about pivoting to
GM recently gave Cadillac dealers a choice: Accept a buyout
offer to exit from the brand or spend roughly $200,000 on
dealership upgrades -- including charging stations and repair tools
-- to get their stores ready to sell electric vehicles, these
The buyout offers ranged from around $300,000 to more than $1
million, the people familiar with the effort added. About 17% of
Cadillac's 880 U.S. dealerships agreed to take the offer to end
their franchise agreements for the luxury brand, these people
Most dealers who accepted the buyout also own one or more of
GM's other brands -- Chevrolet, Buick and GMC -- and sell only a
handful of Cadillacs a month, the people familiar with the effort
The skepticism from some Cadillac dealers underscores that, even
as investors bid up the value of electric vehicles, questions
persist about interest among consumers and the retailers who serve
Tesla Inc. has become an electric-vehicle juggernaut by selling
directly to customers, without franchise dealers, a model several
startups intend to follow. Traditional auto makers, on the other
hand, are tasked with overlaying their electric-car plans on dealer
networks that today make their money selling gasoline-powered
Dealers across brands say they are weighing costly facility
investments, such as electrical-system upgrades, against
uncertainty about demand for the vehicles, which now account for
about 2% of U.S. vehicle sales. Some retailers say they are putting
off orders of electric models, worried they will sit too long on
Even in markets where electric vehicles are more popular, like
San Francisco, dealers say the lack of commuting during the
pandemic has led to a drop off in demand for cars like GM's
Cadillac global brand chief Rory Harvey confirmed that the
company offered buyouts to dealers, but declined to specify how
many had taken them or the value of the offers.
"The future dealer requirements are a logical and necessary next
step on our path towards electrification," Mr. Harvey said. Those
who aren't ready to make that commitment are getting fair
compensation for exiting the brand, he added.
As plug-in models take up more space in showrooms, they are also
likely to reshape the economics of running a dealership, analysts
and executives say. Electric vehicles have fewer components and
require less frequent maintenance, for example, posing a threat to
dealers' parts and service business, a key profit source.
"The way dealers make money selling electrics will be different
than selling combustion-engine vehicles," said Erin Kerrigan, who
runs an advisory firm that helps dealers sell their businesses.
"There will be an opportunity for [auto makers] to rethink their
Cadillac is set to play a central role in GM's electric-vehicle
push, which is among the most aggressive of legacy auto makers.
The nation's largest car company last month said it would boost
its spending on electrics, as well as driverless-car development,
by more than a third compared with previous plans, up to $27
billion by mid-decade. That represents the majority of GM's planned
capital spending, even though electrics account for only about 2%
of its global sales today.
Mr. Harvey said he views Cadillac's broad network of dealerships
as a competitive advantage. But to prepare for the influx of
electric models that will hit showrooms in the coming years,
dealers need to start making upgrades now, GM executives say.
The buyout will shrink Cadillac's dealership network, which is
nearly triple the size of luxury competitors like Lexus and Audi.
GM executives and some Cadillac dealers for years have said the
large dealership footprint crimps the profitability of Cadillac
outlets and hurts the brand's cachet.
Minnesota Cadillac dealer Todd Snell said he views the upfront
costs for electric cars as an investment in the future, even if he
is uncertain how quickly sales will take off, especially in his
"I'm not 100% convinced electric cars will be the silver bullet
everyone says they will be, but I do think they will become an
important part of the business," Mr. Snell said. "We're looking to
get bigger and, hopefully, be around for the future."
Cadillac executives see GM's electric-vehicle focus as a chance
to transform the image of the luxury brand, which has seen its U.S.
market share steadily slide since losing its status in the late
1990s as the No. 1 luxury brand in the U.S. by sales.
Cadillac will get first dibs on electric-vehicle innovations as
the company rolls them out, and its dealerships could feature
plug-in models only by 2030, GM executives have said.
The brand's first all-electric model, a sporty crossover SUV
called the Lyriq, is scheduled to go on sale in the spring of
Cadillac dealer Claude Burns plans to spend the money to sell
electric vehicles but he is unsure how quickly he will be able to
recoup his investment, which he figures will end up being less than
$200,000. But he also noted the growing number of Teslas on the
roadways around his community of Rock Hill, S.C., about 25 miles
south of Charlotte.
"It looks to me like to me this electric-vehicle market might be
fixing to take off," he said. "So I decided I'm going to hang with
Nora Naughton contributed to this article.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
December 04, 2020 17:28 ET (22:28 GMT)
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