Earlier in September, General Motors’ Cadillac sent roughly half of its U.S. dealers buyout offers that, if accepted, would see the stores shutter and cease operations.
Announced last Friday, the buyout offers 400 U.S. Cadillac dealerships — or 43 percent of the brand’s installed dealer base — as much as $180,000 per dealership. Stores receiving the offer sell 50 or fewer new Cadillac vehicles per year, representing around 9 percent of total Cadillac sales.
The potential maximum buyout cost to Cadillac could be $72 million, but some are estimating that the actual cost will be closer to $50 million. So, why is GM and Cadillac willing to spend big bucks to close down a sizable chunk of the Cadillac dealer network? Here’s our take.
1. No Dealers Are Being “Closed”
Before we get into the core of this development, it’s vital to note that Cadillac isn’t closing the stores in question. Instead, it’s offering an optional buyout to those dealers that are not willing or not capable of making the necessary investments associated with Project Pinnacle — Cadillac’s new retail initiative.
2. Too Many Dealers But Too Few Resources
At the heart of the matter is the fact that Cadillac, as it currently stands, has way too many dealers.
Compared to its direct rivals in the prestige luxury space — BMW AG, Daimler AG’s Mercedes-Benz, Audi AG and Toyota Motor Corp’s Lexus — Cadillac has roughly three times as many dealerships in the United States, a circumstance that has profound impacts on the operations of the brand and its dealer network.
Reducing dealer count will definitely result in a smaller footprint and geographical reach, but the stores that remain end up with a higher sales through-put (read), which normally results in fatter margins. These higher margins typically lead to higher revenue and, when run well, profits, thereby leading to more willingness by dealer principals/owners to invest in upgrades, like the physical improvements initiated by Project Pinnacle, which addresses address staffing, service and other operational details on the retail level.
By contrast, a higher amount of dealers results in fewer sales per dealership and lower revenue with slimmer margins, resulting in dealers incapable of investing in their own stores or marketing operations.
Having fewer dealers is especially vital when considering Cadillac’s sales volume, which is consistently lower than that of its direct rivals. In fact, over the last decade, Cadillac sales have fallen far behind BMW, Mercedes and Lexus, all of which sell twice as many cars as Cadillac.
| Brand | Jan 2016 – Aug 2016 U.S. Deliveries |
|---|---|
| Mercedes-Benz | 219,704 |
| Lexus | 210,392 |
| BMW | 204,744 |
| Audi | 134,562 |
| Cadillac | 103,918 |
Cadillac’s lack of SUV and CUV/crossover vehicles in a market hot for such models has widened the sales volume gap even further. Cadillac President, Johan de Nysschen, is addressing Cadillac’s paramout need for crossovers, with at least three new crossovers models due to join the lineup prior to 2020.
3. More Cadillac-Only Focus At Retail
Another important element to note is that a large percentage of dealers that have been offered the buyout have other GM franchises in the same or adjoining buildings, such as those from Chevrolet, Buick, or GMC. Those other franchises typically sell in higher volumes and therefore receive higher levels of attention than lower-volume Cadillac stores.
By contrast, stand-alone Cadillac dealers — like most that sell Mercedes-Benz, Audi, BMW and Lexus — have a clear-cut focus on marketing, selling, and servicing those vehicles, rather than treating those sales as an incremental addition to sales of other vehicles. The nature of having most dealers focused solely on Cadillac for their bread-and-butter operations, along with used vehicle sales ops common to nearly all U.S. automotive dealerships, should result in a welcome cultural change at the retail level. And (some of) the dealers who aren’t all about Cadillac might see the buyout offers as a burden off their shoulders.
4. Reducing Field Support Costs
In addition to healthier and more profitable dealers, having fewer outlets will also enable Cadillac to reduce field support costs. This means that it will need to hire and train fewer district sales managers, district service managers, zone managers, and the like (decreasing costs) while enabling the remaining staff to increase their focus on the outstanding stores (enabling higher levels of quality).
5. Inreasing Advertising Support
Having a smaller, more focused dealer network will also enable more effective use of Cadillac’s ad dollars, as its advertising budget will be more concentrated, thereby enabling higher ad spend per DMA (designated market areas).
Trimming the dealer count will also naturally move some sales volume to the remaining dealers, thereby making them more profitable. In turn, those dealers would theoretically have more funds to allocate to marketing and advertising than they did before. Though exceptions do exist, the smaller Cadillac dealers rarely did much advertising to drum up sales, since their focus is on higher-volume Chevy, Buick, or GMC vehicles.
6. Simplified Logistics And Inventory Management
Fewer dealers also brings the rather obvious reductions in cost associated with logistics and inventory management. Plus, there’s no need for virtual showrooms or local inventory stores, which were ideas Cadillac was toying with in the past in order to address inventory-related issues experienced smaller dealers.
All things considered, we see the buyout offers as a positive for all involved: Cadillac trims its dealer count that’s more in line with the market in which it competes, while dealers who aren’t particularly enthusiastic on investing in or otherwise focused on their franchises get a way out, and some cash to boot.
And, as future Cadillac models begin to arrive over the next several years, they will go hand-in-hand with the Project Pinnacle retail network restructuring and associated updates. Sounds like a good plan to us. What about you? Sound off in the comments.
Comments
As I stated in another section/comment, if my Cadillac dealership closed, it would be quite likely I would more seriously look at a BMW, Mercedes, or Audi when it comes time to replace my 2016 CTS.
Of paramount importance to me is location, location, location! I have no interest in traveling the distance to the next closest Cadillac store for sales or service. All three of the imports have locations in closer proximity to where I am located.
With that being said, I seriously doubt my dealership will close. Sure their sales are fairly substantial and frankly my impression is the service level they provide is far superior to the product they are being asked to sell!
I think the point Martin, is that your Cadillac dealership will probably stay since it shares the same geographical area as it’s main competitors. As stated in the article, Cadillac is bloated with almost 3 times as many dealerships with 1/2 the sales. The goal being to catch those folks who are already traveling to purchase MBs, BMWs, Audis, and Lexus’ and have them travel to get a Cadillac as well. There will never be a situation where Cadillac will remove a dealership and make potential buyers travel when their main competitors remain in the area.
It is a sign of the times , Cadillac is not as big as it once was and their new philosophy is to sell fewer cars at a higher price point . I agree with the previous reply that there are going to be lost sales to people that are not wanting to drive an hour or more to purchase a car from a car company that is focused on regaining their lost image .
The only Cadillac dealership in my area also sell ” Hyundai’s ” ! After that the next closest Cadillac dealership is more than 2 hours away . We also have a Dealership that sells MB’s , Audi’s , Porsche’s and BMW’s all from one facility .
This new program may work in a higher populated area but not smaller cities .
My Cadillac dealership isn;t going away but how do they get away also selling S. Korean cars right next to Cadillacs.
So this year we will see G90’s sitting on the same showroom floor as the CT6 , or a $ 100,000 Escalade ( which is the first time for me actually seeing a Cadillac with that high sticker price !
If every one of the dealerships that sell under 50 units per year (not monthly by the way), about 423 all take the optional buyout than there would be about a 5-6% reduction in year over sales.
Remember that those dealerships make up about 10% of the volume for Cadillac and since some of those 10% will travel to the next town to buy their Cadillac I do not think that Cadillac will have a 10% volume reduction.
The Cadillac dealership in my area is a Cadillac/Buick/GMC dealership. However, they built a separate dedicated facility for Cadillac adjacent to the Buick/GMC building. It’s small, but the focus is completely Cadillac (the lot and salesmen only handle Cadillac). On that note, you still have to go to the same building to get service for all 3.
All those other automobiles have been offering a convertible for years. That’s why I buy Porsche and BMW. Cadillac just doesn’t get it do they. America enjoys an open car.
You forgot number 7
#7 Less dealers make for stronger dealers due to increased sales and less competition with other cross town rivals.
In many markets with 2-3 dealers they have to compete over the same slice of pie. Remove the two competing dealers and locals have only one dealer that can get a better ATP for their cars. No extra discounts to close the sale and only more expensive competition to under cut.
While this helps GM it also helps make the stronger dealers stronger.
As for the claim people will not buy because they have to drive an hour? That is total BS accept for a very small number of people. As it is now most luxury brands are not very close to most of their customers. Most are farther than anyone of the surviving Cadillac dealers will be.
The true is It will be on Cadillac to provide the best compelling cars to the customer that they will not care how far they need to go to buy one. They know this and that is their goal.
If you are buying a Cadillac just because it is cheap or convenient that is not a good reason. You want people want to buy the car because of it’s image, status, quality, and styling. You want people to buy one because of what it is and what it says about the owner.
Lets face it Rolls Royce has been decades from being what i would term a really good looking car but yet people will drive hours and spend untold amounts of money on it because of the quality and name. The other models are no different as people buy them for the image it spreads on the owner. This is what Cadillac needs to earn back and it will take continued better product. Better dealer service. Better styling and continued image building and product placement.
In short there is still a lot of work, investment and time needed.
As for niche models like Convertibles and sports cars in due time. The main focus needs to be on SUV profits and getting the core market sedans in order. If you can not make a world class sedan that it’s greatness can not be denied then why should someone choose your odd low volume niche car that you make little money on?
The main focus here is to think with your head and not entirely with your heart.
Hey Scott, how many Cadillac’s have you bought or do you own? Guessing zippo!
You may not think driving an hour one way for service is asking much but I do and am sure many folks are not interested in a two hour drive for service! I will buy a German car before I do that!
By the way I currently have a Cadillac as to an HHR and have owned 5 other Cadillacs and will not drive 2 hours to have a car serviced, especially when quality is not equal to the Germans. A two hour round trip with my abysmal quality 2014 ATS would have required me to utilize my full vacation time allocation to maintain this vehicle.
This is a prime example of cart before the horse–beat the dealer network to step up their game before they have top notch vehicles to sell!
Sir we have had two in the family recently an in the long past there were a number of them when they really were considered the standard. Yes these were before my time. I still have the mint owners manual of the 1954 along with the vanity mirror. The last DTS was 86’ed because it was a piece of crap.
The fact is there will be Cadillac dealers within range of any German dealer there is unless you live in Booger Hole West Virginia. [Yes there is a place named that and they are an hour away from any Cadillac and all German dealers}
That was my point it is on Cadillac to build better cars and more compelling cars that people will be willing to drive that far. That from what I have seen is the plan. At this point we have yet to see the first model of this plan as it takes 5 years min to do a car from the ground up all new. The CT6 and XT5 are not cars from the present admin as they were locked in and done by the time they arrived.
The real question is if you are disappointed in the poor quality of your Cadillac’s then why are you buying the.
You surly have little vacation time if you are using it all up.. Besides the local Cadillac dealer here will pick up the car repair it and return it washed. Your dealer must be one on the bubble selling mostly Chevy’s? No vacation time needed and loaner provided. Benz here will not do that. neither does the BMW dealer. Loaners yes but no pick up.
In fact the dealer has done this for years and is one of the larger dealers in the region and only sell Cadillac models nothing else. This is the so called cart GM wants before the horse. If Towel Cadillac can do it the others should put up or get out.
As for quality I happen to work with a number of ATS owners and none of them appear to have your issues. They are all happy and all under 45 years old. It is a mix of V6 and Turbo models and AWD.
The real issue with the cars that needs to be addressed is that they need to step it up on the quality and feel of the cars. Better interiors. Better standard options. Engines that are of their own and offer more power and NHV. It is not really one big thing but a number of smaller details that need to be addressed. These are the things that add up to make a model better. Also real leg room and other details.
The fact is Cadillac is working hard now to bring these better models out now. They should arrive in the next couple years and continue to come. That is why they need to work now to shed the bad dealers that under perform and just are not serving up to a level they should be and be ready for the new product.
Will all this work? I expect most of it will. As with all plans some parts do not work and that is where the new admin needs to be fast to correct issues and responsive to any place they fall short. How they deal with these things is what will make this whole deal work or not.
I like the rest of us we need to let them live or die on their plan as no one knows for sure how this will work out. Once it goes down then we can be critical.
The one thing for sure is There are just too many Cadillac dealers as if proof of yours sounds like you should already know that.
The other issue is there are also too many Chevy dealers too. Chevy would like to cut their numbers to about where Toyota is. There are so many dealers at Chevy they end up hurting each others.
Out town here is not all that large and we have 6-7 Chevy dealers vs. 2 Toyota dealers. Now keep in mind this does not count the dealers in the out laying small towns nor does it cover the Cleveland or Canton markets that have as many or more Chevy dealers. We should have 2 at best here that could easily serve the area and not step on each others customer base. As it is now many of them have horrid service accept for the larger ones.
The Buick dealers kind of got weeded out in the bail out. There is not many of them and most that survived were GMC dealers so they are doing well. One local dealer turned down an offer of Buick as they are doing so well with GMC right now they did not want the car line. Their ATP is over $60K and they are the largest GMC dealer in the region. Note they have been offering service that is so good people drive from several counties to go to their dealer outside a small town. They even built a new dealer totally up to the GM spec.
Here is another as this was really a funny episode.
As funny as this was they do not make shows like this about the other luxury makes. When you have become a punch line you really have a lot of work to do.
Law background maybe? Two in the family. Question is how many do YOU own? How many have YOU owned? You always seem to be what you term the consummate armchair quarterback with all the answers and am wondering how that can be when YOU haven’t owned any.
My discussion about a trek of an hour was thrown out for the future. Sure no Cadillac dealership is going to pick up and deliver a service vehicle an hour away. Getting a loaner is not a satisfactory answe here since the two hours become four!
As to considering alternate vehicles that may happen. I have family members that worked/have worked for GM and I have a semi/blind loyalty to support a company that provided a livelihood to family members. With that being said, another piece of crap like my 2014 ATS Premium and I WILL go to a German competitor. That nearly $55K vehicle was the worst I have owned in 50 years of driving! Additionally I do value my relationship with Baierl Cadillac, and find their service/sales staff several levels higher than the quality of products they sell!
If you don’t think ATS reliability is poor, go look at CR owner’s report on reliability–poor every year since 2013. That sampling size is considerably larger and more scientific than “people you know”!
Will all this work? That is the $12billion question. You think it will? Absolutely next to nothing to support that position at this time. Total unknown. But since I have the benefit of personally owning and paying for six Cadillacs, I’m just as entitled to my armchair opinion and say I have my doubts.
What is the difference I drive them and work on them. Have have had a long experience with the brand good and bad.
#1 where are 90% of the owners located. Metro areas.
#2 what will most metro areas have? 1-3 dealers that will be less than an hour from most customers.
#3 Consumer reports only takes info from their subscribers and that is a very small slice of all owners and cars. It is about as scientific as a presidential pole on the web. This is why the industry takes CR with little claim of good or bad.
As for your threat to go to a German brand go for it. No matter what Cadillac does here you appear to have no understanding of what they are doing or where they are going so you and Cadillac would be better off with out each other.
As for the Germans reliability is not what it once was and the cost are even higher when they do. You may want to just lease here.
You certainly have a right to your opinions. I like them as often they make the rest of us look better when you get so off base at times. There are many here that are students of how the industry function more than the superficial personal opinions.
Case in point you want dealers everywhere and think this is a bad thing. On the contrary it is not my opinion but the industry as a whole that fewer dealers make for a stronger network and if you have a compelling product it matters little if you have to go farther.
Example Ferrari has one dealer in most states and in some none. Yet people come from way out to buy.
Cadillac will have few areas where coverage is lacking vs. the potential customers. Also having spent time out in the mountains away from things most people in these areas are driving over an hour to the closest Walmart. It is just part of life. McDonald is another 45 min drive. Rural folks are used to this. Their Chevy dealer is over an hour away right near the Cadillac dealer.
Also my take on this is you are the Cadillac customer of the 60’s-90’s type. This is no longer the kind of customer they really are targeting anymore. This is the kind of customer they got in trouble catering to.
As for your ATS it could never hold a candle to the poor reliability of the 80’s and N star engines. That was a nightmare. Blown head gaskets, stuck rings oil leaks etc. What a steaming mess.
The fact is I will be the second to admit the ATS is not where it should be. Who is the first JDN. I took this as honesty as he knows this car has things that need fixed. As of now that is what they are set about working on. It will be interesting when they do the major refresh how much will change. I think many really have no idea that things may change much more than they are expecting. But we need to wait to see just what they bring to the table.
Your glass is half empty mine is half full. You have made your case and I have made mine. We will just see where this goes.
Sorry for the delay. Dramatic difference between driving the car and living with the car under all circumstances. Furthermore, I have “skin”(money) in the game where you have actually none.
Consumer Reports reliability sample is far larger than cars you work on and the folks you know. Rag on CR all you want but this is without a doubt the most influential source of information for folks who are not enthusiast. The vast majority of auto purchasers are not enthusiast and are not overly concerned with performance or handling qualities. Their most important considerations are quality and reliability–yes a very expensive appliance.
Why I’m so critical of Cadillac is quality and reliability almost seems to be an after thought! In the process of “ditching” their prior customers, growth will primarily come from conquest sales. Until Cadillac documents they can produce a higher quality vehicle that is better than BMW, Mercedes, and Audi, that is not going to happen. Folks are not going to dump their German cars unless Cadillac can prove they are BETTER. I generally will never by another brand of anything as long as I’m getting great service (quality) out of any product I use.
Believe your take is wrong. I’ve owned a 2015 Colorado, 2010 CTS-V, 2007 Corvette, 2005 Corvette, 2008 ZO6, 2010 Escalade, 2014 ATS, 2016 CTS. Hardly 60-90s type!
To compare my 2014 ATS to the quality of 1980 cars is ludicrous! It should only be compared to other 2014 comparable cars and there it was abysmal!
I really want Cadillac to succeed, but am not convinced there is the urgency and effort in appropriate areas to be successful (luxury = quality and reliability). Success is not limited to the fastest figure eight sedan or the quickest through the quarter mile.
Anywhere there is a BMW and/or Mercedes dealer there will be a Cadillac dealer. So where the sales are, they will be there. It’s those small guys in the middle of nowhere that will have to drive just as do those who want a BMW.
Again folks, Cadillac is not closing a single dealership.
This offer is not a forced closure. Cadillac is offering it’s smallest dealers an ‘OPTIONAL’ buyout if that dealer principle decides that they do not have the resources or do not see the benefit for them to enroll in Project Pinnacle.
Also bear in mind that the program calls for the dealer owners relinquishing their franchises but it does not guarantee that Cadillac will close them. If Cadillac sees that geographical area has importance they could offer that franchise for sale to a new owner or possibly to another existing Cadillac franchise owner with deeper pockets.
My issue with Cadillac is the same issue I have with Lincoln, Lexus, Acura and others and is the reason I buy Mercedes cars.
If I am paying top dollar, I don’t think my vehicle should share parts from “lesser” makes/models and no where should I see reference to said “lesser” makes/models. Years back, I knew a fella that bought a brand new Town Car every 2 years. He used to say “it’s just a Ford in fancy clothes”. I’m sorry but not for my money. Cadillac’s should be exclusively Cadillac. I don’t want to hear about cost saving by using shared parts. Mercedes sells more luxury vehicles in the US than any other “luxury brand” and they don’t share parts with “lesser” vehicles AND they are profitable.
That has been an issue but today it is being addressed.
As of now the Alpha was developed at a Cadillac and dumbed down to a Chevy that is still a good car but they do not share much.
The Onega is only Cadillac at this point.
The Engine while they have had great engines need to change and that is why they are working to make their own versions of the corporate engines till they can get their own on line. The TT Turbo id Cadillac only and they are now working on a DOHC V8 that they will not share.
The goal is to over time get much of what they use be their own accept for systems you can not see like transmissions and steering etc.
Also the other goal is to be profitable enough to fund their own development to free them of the GM money they have to use now. This will set them free to do more of what they want vs what GMs board wants. As long as they make money and if they can fund themselves they can function more on their own.
These are long term goals but they are working to them.
Right now the major thing is to get the resale value up. Lower volumes and less fleet sales help but they still need to do more to put more value in the cars and increase demand new and used.
This like image is not something that is going to change in one year or with one model.
Now on the converse with development cost going up how will BMW and Benz defend against rising cost. Audi shares now with VW and the other sister divisions. BMW also now has a limited partnership with Toyota. Benz may not have to farm out a lot but they will have to work with someone as the market is to the point no one can do it all alone and see the profits they need. Benz will have to find a dance partner on systems development and maybe even share a platform. I suspect they will do so with the FWD where they need the most help in where they are going.
It will be interesting to see who works with who. The GM and Ford partnership dance is far from the oddest paring we will see.
Note I did not vote you down as it is a legitimate point. +1
Does anyone remember Saturn ?
They were to set a bold new path to compete with the import market and have complete autonomy from Corporate restraints.
They had a tough time getting CONSISTENT by-in and co-operation from upper levels and eventually disappeared.
Cadillac is now seeking that autonomy and is looking for BIG $$$$ to develop their own stuff to not share.
Be careful what you ask for………
Saturn died because they got too little product, too slow and by the time they started getting new product it was too late.
Saturn was just poor management all they way around. They only ever had a couple cars and saw little investment in them while they were around.
Truth was GM did not know how to handle it then as the culture was a wreck and the clear point GM was nearly broke for nearly the entire time they tried to start Saturn. The near closing of Pointiac and the closing of Olds was not because they were doing all that great. Even in house managed divisions were a wreck.
While things are not perfect yet the management is much better off today than just 10 years ago.
The old GM would never have let Cadillac so as they have to this point. Never would have happened.
Saturn was also supposed to be an “import fighter”. Sounds like Cadillac is going the same route. Funny how the old style Cadillacs made gobs of money and the “import fighters” of today barely break-even if that. But I guess putting all foreigners in charge of Cadillac can continue the dream of chasing imports, rather than charting its own road to riches as an American icon of American luxury.
Cadillac can move to New York or Timbucktoo and it won’t change the fact that outside of the Escalade ct6 and Xts, the rest of the line is made up of little compact cars that have no prestige whatsoever. That’s why they can’t drop the Xts like they had planned because it still sells. Personally as a Cadillac owner I couldn’t care less how fast my car goes from zero to sixty. I would be more concerned with front and rear leg and head room and a full size trunk.
I agree Fred. We’ve had many discussions here as to whether Cadillac should be making tight, cramped, hard riding “sports” type cars, or true American luxury sedans which are roomy, well powered, and give a very comfortable and stylish ride. Unfortunately the “small hard-riding sports” type cars are what Cadillac wants to make now. Mistake I think, but reality. And a lot of the “Cadillac fans” are cheering it on, losing sight – or never actually knowing – what Cadillac used to mean.
After reading this article and the one about Buick’s Avenir the picture is now in focus.
If Cadillac truly want to compete with Benz and BMW they are slowly but surely doing the right thing.
Buick will be the luxury boat Americans love (btw, me too) and Cadillac will be a $125K rear drive luxury sport sedan/coupe.
Time will tell but maybe in a few years Caddy will be the next Beemer/Benz.
If that’s the case then I can’t wait to get a 2 seater boxer Caddy!
The fact is JDN may not have been in on the initial programs of the XT5 and CT6 but he surely had an influence on the final product . And that is not total B.S. ! He has been working with the head designer since he opened the door to his new office . It is like any business that has a new boss , they want things done their way . I have seen new Plant Managers walk into their new office and the first thing they do is call a meeting of their cohorts and let them know a new boss is in town and these are the things I want done . Mary didn’t hire him to do absolutely nothing with what has become Cadillacs flagship model .
It gets a bit old to constantly read how he hasn’t done anything yet and to wait until ” his ” cars come on line and he hasn’t been there long enough , blah , blah , blah . I’m sure Mary had it written in his contract that he could put the division in hiatus and wait until 2020 to see just what he could do to start to turn around a company that has lost it’s soul .
I also am not saying that his vehicles won’t be first class automobiles ,lets hope they are but alot more needs to happen at Cadillac to begin to gain the trust of consumers . Maybe Mary and JDN can go have a cup of coffee in mid-town and discuss whether she will renew his contract at General Motors . Time will tell .
Sorry but the XT5 and CT6 were locked in to the point design was not possible by the time they were released. That is a fact.
Now as in some marketing and smaller details yes I am sure he has some input there but none were game breakers.
The CT6 and XT5 were pretty much left to Mark Ruess to deal with between Division Managers.
You may have a Death Wish for JDN but I am sorry you will have to wait as you have absolutly no evidence to convict him on.
Now with that said in the nect 2-3 years we will see the start of his products he is fully responsible for and then it is game on for you then. Till then you have absolutley nothing to work with.
His cars could be total crap and I will side with you if you want to string him up. But at this point I will not go that far as there is NO! evidence of his work yet.
You do understand a full on new car takes no less than 5 years to produce and is locked in pretty much by 3 years and that is on an existing platform. Add a Omega platform and it can go 7 years.
Mild refresh? That is simple front and rear changes to existing cars that are not major changes. That takes no less than 2 years. Hence that is why we see the minor changes to the ATS and CTS this year. Why because JDN hit 2 years at Cadillac last August.
You may not like it or believe it but the time line narrative does not fit your wishful thinking. You need to only get back tot the basics of how long it takes to build a new model and take changes to know better.
I am in no way defending JDN but I will not condemn a man for something he has not even done yet.
I will judge him on his final work not some simple comments on color or pricing that was about all that was left for him to do on the newest models.
I also know Mark had a fight on his hands to get the CT6 to where it is at now. This was the best he could get and I feel this is why they want the headquarters in NYC away from the folks who are on the board that like to drop in the studio and meddle.
The whole move to NYC was about two things. Attacking better talent. Lets face who wants to move to Detroit? Second it was about preventing those over the people responsible for product getting their products watered down.
The meddling has gone on for years and the product payed the price. The Fiero Program was intended to be a sports car from the start. It was shut down several times by GM heads. Pontiac has to move the program to Entech Engineering to get it done on money they did not have. GM Really could have gotten the car right from the start if they left it to Pontiac and supported them. No they meddled and screwed up the whole concept before the first one was built. Pontiac had to compromise and was left with much less than what they really wanted.
This has been common at GM. Just on the CT6 Mark fought over using cheaper door handles. They wanted him to use bin or cheaper units. He wanted a better handle as what is the first thing a driver touches when the get to the car? If you give them a cheap handle the impression will decline from there.
JDN will live or fail on his own product and we should give him that much. If he fails fairly I will cast the first stone but not until then.
I have no love for JDN one way or the other. I do have hope that being an outsider and one that is not wanting to be told what to do by GM higher ups that Cadillac has it’s best shot of breaking out of the same cycle of failure when the insiders yield to the board on everything and anything to protect their career.
JDN has a lot of Lutz in him and I expect it will be put to good use. Lets just see what happens before we lower the life boats.
What have we got to lose at this point.
I think you get an idea of what JdN is up against when you see how long it took just to set ‘Project Pinnacle’ in motion. Retooling the dealer body and store experience was one of his early priorities. The political challenges are likely as difficult as design, and engineering and production.
Yes Captain you are 100% correct.
JDN is Marks bull dog and agent of change as he is not part of the cycle of failure of GM lifers that are afraid to make changes and crash their career.
JDN if from the outside and not afraid of any of the detractors who want to continue the cycle of failure.
As of now the systems of how things work at Cadillac are being addressed. they are bringing in their own engineers and designers.
As you have pointed out he is trying to set Pinnacle in motion.
And some here just do not understand you make many changed in two years and one month to products. One only has to understand the calendar that the 2015 cars were untouchable. The 2016 were pretty much locked in and the 2017 will only receive minor changed like dash panels and fascia changes.
The Politics are as trough inside GM as they are in Chicago. For once the good guys have been winning and are in control but it still is a slow process of change.
As Lutz stated there are people in GM that are the problem and there are those not the problem. He pointed out Mark and Mary as two not being a problem. JDN is their guy so we have to lump him into that group as long as he serves at their pleasure.
Please remember Mary, Mark, and JDN are not and will never operate in a business vacuum. All those folks serve at the pleasure of the board and the ultimate decision makers / owners of GM are the stockholders!
Investments by individual stockholders are somewhat benign on the impact on the operation of the business However ownership by professional investors tend to be a lot less patient. Investment return in a much shorter timeframe tends to be the mantra! If you are looking for an indication just look how the one large private investor shook down Mary and the board a couple of years ago for increased share buybacks and increased dividends.
Welcome to the business environment in 2016!
Martin, it would take an activist shareholder like Carl Icahn to shake up GM. Boards of directors rarely act unless the business and stock performance is absolutely horrible. I think GM is doing some good things, especially at GMC, Buick, and Chevrolet.
What I would have done, had I run GM, would have been to close Buick (or keep it as the “basic family car”), keep Cadillac as the American “plush luxury” leader, and started a new “Corvette” brand to pursue BMW (assuming that it’s even wise to pursue BMW at all) in the “sports luxury” segment. I think GM thought it was easier to just continue existing brand names, yet change the missions of both Buick and Cadillac. But the problem with that is that the public has long-standing perceptions of Buick, Cadillac, and frankly Corvette – instead of trying to change the public’s perceptions they could have just run with those brand names as they existed, rather than trying to say “this is not the old Buick brand” and “this is not the old Cadillac brand”.
Drew, agreed it would take a Carl Icahn to create total levity such as a threatened takeover and I am fairly comfortable few investors would be interested, but the investor who shook down the board a couple of years was not Icahn and he got increased stock buybacks and dividends. This was a “diversion” of several billion dollars.
My whole point is that business currently is fairly decent other than valuation of GM stock (all car companies) is mediocre. Should business drop off, and an activist investor becomes interested this could disrupt the plans of GM management including the $12 Billion investment in Cadillac.
Drew, with the very positive situation of Buick in China, no brainer to continue Buick.
Martin, good point about Buick being so popular in China. I had thought that Cadillac could have been just as successful as Buick in China, but it turns out Buick had an even better reputation in China than Cadillac at one point. And maybe Buick’s popularity as a “luxury car” in China is resulting in better Buicks in the USA. The new Lacrosse certainly seems very close to something that might have worn a Cadillac badge (based on Cadillac’s prior goals), had Cadillac not been in the process of a brand transformation. The Lacrosse would need a bigger trunk, perhaps more rear headroom, and more edgy straight lines (rather than rounding and curves) to be a true Cadillac, IMO.
I still think that if the US were the only market under consideration, a change to strictly Chevy/Cadillac/GMC/Corvette would have made sense – back when GM was shedding brands such as Oldsmobile, Pontiac, and eventually Saturn. With the China market in mind, keeping Buick makes sense. But it will be a long time before Buick can challenge for the “plush luxury” market in the USA, which Cadillac once ruled.
What you are missing here is this.
First off activist share holders are rare and usually have other motives like breaking up large operations for profit.
In the case of GM they are in a good place now they have low debt and have been showing increased profits. Now their profits are low compared to say Apple but they are as good or better than most auto makers in a tough market.
Their prep for the future with lowering cost and increased ATP will help if the market slows as predicted.
As it is Mary and Mark are very safe to say the least and JDN will be judged on what he does over the next few years.
Keeping Buick was a no brainer same with GMC as it gave the other GM dealers added SUV models and trucks. The Denali move was a great profit move.
As for Cadillac in China. I think Drew you miss why Buick is treasured there.
The Emperor had a car collection and the cars he treasured the most were Buicks. Even Cho En Lai for years was driven around in his favorite car the Buick.
What may fail to realize is Buick holds an image of being the car of the most powerful in China be it imperial or communist. If I recall even Mao had one too.
The people in China look at these cars and brand much differently than any other brand and not for the same kind of reasons any American does. We are not one world.
Cadillac has no free image there and most of the people from China were not exposed to Cadillac so they have to earn their image like all the others.
Scott3, yes as I mentioned above your post, Buick was better known as a luxury brand in China than Cadillac. So it does make sense for GM to sell luxury cars in China under the Buick name.
But in the US, Buick was a “somewhat more upscale than average domestic” brand, rather than a luxury brand. And Cadillac was never known as a sporty/performance brand. GM has tried to change those brand perceptions while using the former brand names. It’s not really working. On a BMW forum I saw that someone was complaining about the hard ride in his BMW and a couple of participants said if he wanted a soft ride, get a Cadillac. Despite that no longer being true for the Cadillac brand. To me it would make more sense – in the USA – GM keeping Cadillac the luxury brand with the plush “Cadillac ride”, making Corvette the sporty/performance brand, and dropping Buick entirely (in the USA). Then what sold as Cadillac in the USA could be called Buick in China.
And GM is already doing this. One of the most popular cars sold in the Mideast was the Chevrolet Caprice, a very roomy full-sized car (perhaps the last US car that could fit six tall adults, 3 in the front seat, 3 in the back seat). Today a GM car still sells in the Mideast called the US built Chevrolet Caprice, but the real Chevy Caprice was dropped in the US market long ago. Today the “Chevrolet Caprice” sold in the Mideast is built in Australia, where it is sold under the “Holden” brand. It’s also sold in South Korea as the Daewoo Veritas, and in China (where it is also assembled) as the Buick Park Avenue. The Australian built Holden Caprice is also sold in the US to police departments as the Chevrolet Caprice (the US made Caprice was always a popular police car and taxi car, which GM felt hurt domestic sales due to regular consumers being scoffed at as owning a police/taxi vehicle).
Now it would be nice to create international brands that meant the same thing everywhere. But the fact is that most companies including GM tend to exploit the well-known brand and tailor the car to that brand perception of the local market. Rather than trying to re-purpose a well-known existing brand to a new mission – and expecting the local market to understand that the mission of that existing brand has now changed.
My guess is that the Cadillac dealer in my city is above the 50 car per year threshold, so this may not apply. That being said, if the dealership closed out the Cadillac line (They are a Buick/GMC-Cadillac dealer), those sales would most likely simply be lost, probably to Lincoln. The next nearest Cadillac dealer is 100 miles in any direction, along with the luxury competition. That would leave Lincoln as the only luxury brand nearby.
Dennis, I suspect that Cadillac is headed in a direction that will hand a lot of future sales to Lincoln. Not because Lincoln cars are that great (though they have been getting somewhat better, especially the SUVs and possibly the new Continental), but because Cadillac is intent on abandoning the “American Luxury” segment. I find this sad because Lincolns have rarely been quite as nice or stylish as Cadillacs (though at times they have been close).
But if Ford is smart they will work hard to make Lincoln what Cadillac used to be (and could have still been) in terms of segment leadership. Perhaps they’ll hire some disaffected Cadillac engineers and designers, to help turn Lincoln into the new Cadillac, while Cadillac flounders in attempting to be the new BMW.
Buick has been/is continuing to be made in to what Cadillac used to be. Last I checked, Buick is the most healthy of all GMs brands so they’ll continue pumping them out in that space while Cadillac continues to move upmarket.
The choice here was to let all your dealers struggle with a system of too many dealers vs sales or kill the smaller dealers and make the strongest stronger.
The 9 percent these other dealers accounted for going to mostly go to the other dealers. The 1-2% that don’t were costing more than they were bringing in.
When the cost of doing business is more than the profits you need to address it.
Lincoln is going to go it against the low end luxury like Acura and even Buick. Their SUV models will be where the money is but it will be limited there.
Cadillac is going to the segment where profits per unit sold are higher than anything but trucks.
Cadillac is working to make a place of itself here. While they may compete agaist the Germans they have done it in a very American way.
Has Cadillac copied the German Styling like Lexus has for decades. No.
Has Cadillac cut all the chrome trim off No.
Has Cadillac keep the flavor of the cars still American but just up to date so they stop, turn and go with anything on the market? yes.
While there are some expected things in this class Cadillac has added it is not so much because the Germans had it. It was added because customers expect it in this price range.
Lets face it today in a top luxury segment you can toss a road apple and it would be hard not to hit a German Luxury car. Even Bentley and Rolls are now German.
Ford has a lot of work to do at Lincoln and there is still infighting on keeping them or closing them down. The keeping them open people are winning and I hope they keep winning.
Ford had moved to make a premium line on most of their larger models to replace Lincoln and Mercury. Well that changed in time for Lincoln.
On the other hand GM has a rare advantage with Buick as they can address the low end with the brand and then move to Cadillac to only to do the heavy lifting in the higher class. Even Benz is not doing that. They are stuck trying to make a cheaper low end FWD Benz that Cadillac can avoid.
Scott3, good and interesting comments. But I disagree in a few places, such as:
“When the cost of doing business is more than the profits you need to address it.”
Yes on an overall basis that is true. But sometimes to have complete coverage for your product – which in itself provides a service for your customers and makes the brand more attractive overall – you might have some operations which do not make a profit or even run at a small loss.
For example, I have a friend who is in the food distribution business for fancy clubs and high end restaurants. He doesn’t like selling ice cream because it’s hard for him to make a profit on it, as the cost of refrigeration is high and he doesn’t have the economy of scale to make it profitable on a per unit basis. But he offers some high end ice cream anyway, because certain of his customers want it, and he wants to be a one-stop shop for them.
Similarly, Cadillac may have some low-profit or unprofitable dealerships in lower population areas, but continuing to serve these areas can still help the brand. Even the high volume dealerships in an affluent suburb of a large city might benefit from this – i.e. the customer who knows that Cadillac has a far and wide set of dealerships might be more willing to buy, with the idea that if his car breaks down somewhere else, he’s possibly not too far from a Cadillac dealership.
“Lincoln is going to go it against the low end luxury like Acura and even Buick.”
No. Lincoln appears to be going after the same market as the one they and Cadillac used to go for, which is plush-riding luxury at high prices, but not as high as Rolls Royce, Bentley, Ferrari, Maserati, Mercedes S-Class, etc. It’s a similar market to what Lexus is going for now, not Acura – which tries to be “sportier riding” (and cheaper) than Lexus, sort of a watered down BMW. Lincoln is trying to be more upscale than Buick, even though Buick is trying to be more upscale than they used to be. Then there’s the Chrysler 300, kind of a one-car “downscale luxury” segment by itself. I’d put the 300 on a par with what Buick is trying to be overall, though possibly not as good as the new Lacrosse (very close, however).
“Cadillac is going to the segment where profits per unit sold are higher than anything but trucks.”
True, but per-unit (i.e. gross profit or marginal profit) is only worthwhile pursuing if you can get the volume to make it worthwhile. The new Cadillac has not done that. The fixed costs (engineering, design, testing, tooling, marketing) for these so-called “high margin” cars that compete with BMW eat away at those fat margins, when the volume is too low to spread those fixed costs across.
Traditionally Cadillac has been better off selling more cars with lower margins than what the “new Cadillac” has been aiming for. Thus Deville/DTS made a lot of money for Cadillac, the net profit was very high as the volume was high enough to reduce those fixed costs to a low per-car figure. The only problem with that strategy is that some “status symbol” lovers don’t like it when a car isn’t rare enough for them. The people who want rare cars are going to have to eat a large chunk of the fixed costs on a per-car basis. Even so, the net profit on a car model is what matters, not the marginal profit per car.
I don’t understand your comments near the end of your post regarding Ford/Lincoln/Mercury. You may be saying that since Mercury is gone (Ford’s “Buick” traditionally, or was it their “Oldsmobile”?), Lincoln has to go downscale to cover the former Mercury customers. Actually Ford has raised their Ford brand somewhat with the current Fusion sedan and Edge SUV being something that Mercury would have carried. The former Lincoln Zephyr/MKZ was kind of like a Mercury, but the new MKZ is more of a true small Lincoln. Not that Lincoln’s should be small. We’ll see what the new Continental is like. The Lincoln SUVs seem worthy of the old name. And if Lincoln is smart, they will eventually fill in the role that Cadillac appears intent on abandoning. So the Lincoln story has not yet played out.
I realize that GM would like Buick to play low-end luxury while Cadillac does high-end luxury. But former Cadillac owners are more likely to consider Lincoln than Buick, while current BMW, Audi, and Mercedes owners seem unlikely to go for Cadillacs. GM is on a risky strategy that appears unlikely to pay off, and even if somewhat successful, does the world need another “German like” sporty-luxury carmaker? Realize that the more brands which join that supposedly profitable party, the more the pie is split, and the harder it is to get the volume you need to pay for the development and marketing costs.
Also Scott3, I disagree that Cadillac has kept their cars “American”. Stylistically yes they are still American, I have no problem with Cadillac’s styling except where it is moving toward a more European look – which de Nysschen favors (but not Reuss). Your comments about the “flavor” are all about the styling, not the functionality – which I say has drastically changed toward German standards.
The former Cadillac (20th century) never would have made a car functionally like the ATS. Ok, they did: the Catera and Cimarron; the ATS is functionally a combination of the worst traits of each. But the ATS is a very nice looking, very American looking car. It looks a bit like a stubby CTS – which is better looking than the ATS – yet the ATS is still a great looking car. But when did the old Cadillac make such a tiny car with such a hard ride? That’s all German influence and even outright German copying. Though the ATS goes the Germans one better, with an even harder ride and an even smaller back seat – 33.5″ of rear legroom on the ATS – even the 1980’s era Cimarron (Cadillac’s first attempt to chase the Germans) had 34.3″ of rear legroom. Americans are not shrinking.
Additionally – the ATS, CTS, and CT6 are copying the German-preferred RWD as well. Sure US cars were largely RWD until the 1980’s, but FWD has ruled in the US until the German-copying began at Cadillac around 2003. And further – Cadillac is trying to copy German fetishist obsession with details such as “button feel”, lights that dim off rather than shutting off, or “trunk carpeting quality”, which are not historically things Americans have cared about.
So on the outside, yes Cadillac still looks like Cadillac, still looks American – other than that the ATS is too short to be a Cadillac, it’s 10″ shorter than a Chevy Malibu! But on the inside, Cadillac has been trying to out-German the Germans, except on minor bones thrown to legacy crowd such as the current XTS (sort of, although one could also argue that it’s more of a German-American hybrid).
current Cadillacs on the outside look like Mercedes wannabees and the interior is a BMW wanabee.
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