About 150 U.S. Cadillac Dealers to Exit Brand, Rather Than Sell Electric Cars

Source: By Mike Colias, Wall Street Journal • Posted: Sunday, December 6, 2020

About 17% of Cadillac’s 880 U.S. dealerships decide against spending for necessary upgrades

The brand’s first all-electric model, the Cadillac Lyriq, is slated to go on sale in the spring of 2022. Photo: /Associated Press

About 150 General Motors Co. GM 0.70% 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 battery-powered vehicles.

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 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.

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.

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 them.

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 vehicles.

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 their lots.

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 Chevrolet Bolt.

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 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 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 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.”

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 2022.

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 Cadillac.”

—Nora Naughton contributed to this article.

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