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 making the pivot to battery-powered vehicles.

GM recently gave Cadillac dealers a choice: Accept a buyout offer to exit 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 people said.

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 said.

The buyouts are an early sign of looming changes for car dealers as traditional auto makers move aggressively into electric vehicles.

Auto retailers will face upfront costs, such as electrical upgrades to stores and heavy-duty lifts in the service department to hoist electric cars, which generally are heavier than gasoline-powered vehicles due to their large battery packs.

Some dealers have said they are wary of making upfront investments when electrics now account for only about 2% of the overall U.S. vehicle market, much of that Tesla Inc. sales. Previous efforts by traditional auto makers to sell electrics have struggled, leaving dealers stuck with models that are difficult to sell, according to many dealers.

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.

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 said.

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.

Electric-car leader Tesla operates without dealers, a model several startups intend to follow.

"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 franchise models."

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 will boost its spending on electrics, as well as driverless-car development, by more than a third compared to 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 significant 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's uncertain how quickly sales will take off, especially in his farming community.

"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."

Write to Mike Colias at Mike.Colias@wsj.com

 

(END) Dow Jones Newswires

December 04, 2020 15:49 ET (20:49 GMT)

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