The Cadillac of Break-Ups

Electric vehicles have captured the attention of investors in 2020. But not all car dealerships are as bullish.

Roughly 150 U.S. auto dealerships are waving goodbye to Cadillac rather than invest in the costly upgrades needed to sell electric cars.

The Electric Slide

General Motors is making Cadillac the focal point of its electric vehicle rollout. The brand’s first all-electric model, the Lyriq crossover SUV hits showrooms in 2022 and according to executives, Cadillac could feature only plug-in models by 2030.

With that in mind, GM gave its Cadillac dealers a choice – spend roughly $200K on upgrades like charging stations and EV repair tools, or receive a buyout to exit the brand:

• 17% of Cadillac’s 880 U.S. dealerships accepted buyouts, which ranged from $300,000 to over $1 million. Those that accepted will end their franchise agreements with Cadillac.
• Most dealers parting ways with the luxury brand also sell other GM cars, and their low-volume Cadillac sales don’t keep the lights on.

Less Is More: GM execs and dealers have argued for years that Cadillac’s profitability and prestige are hampered by its enormous dealership network – nearly 3 times the size of luxury competitors. The buyouts give GM a chance to revamp Cadillac’s image through a smaller footprint.

A Different Animal

Dealers across brands are contemplating expensive upgrades to retrofit their facilities for electric vehicles. The deliberation is understandable – EV’s currently account for only about 2% of U.S. vehicle sales.

Some dealerships have put off ordering electric models out of fear they will languish on lots. Those that go the plug-in route will have to come to terms with a changing business model:

• EV’s have fewer parts and require maintenance less frequently, which could threaten parts and service businesses, a key profit source for dealerships.

Erin Kerrigan, who runs a dealer advisory firm says “the way dealers make money selling electrics will be different” and will give automakers a chance “to rethink their franchise models.”

The Takeaway

Manufacturers that choose to ditch franchising will be more than a decade behind Tesla – which has been selling direct to consumers since releasing its first models in the late 2000s.