Painful Forecast for Cadillac Dealers

Painful Forecast for Cadillac Dealers

September 28, 2014 — The short term future for Cadillac dealers is not looking good. Sales predictions less than two years ago of 300,000 units a year in 2015 seem foolhardy today as the brand is on target to sell five percent less in 2014 than it did in 2013.

While in Las Vegas last week for the Digital Dealer Conference, we ran into several Cadillac dealers in town for their annual dealer meeting, which was being held at the Cosmopolitan. It was the first dealer-wide meeting for new chief Johan de Nysschen, who recently fled Infiniti to take on the challenge of turning Cadillac around.

Mandate

Also joining de Nysschen in Vegas were General Motors CEO Mary Barra and President Dan Ammann, which according to a couple of dealers, show de Nysschen will have full control over the brand. Long term, that appears to be favorable for Cadillac, but it also indicates dealers may be in for significant pain over the next couple of years.

Some critics view de Nysschen as merely being a bean counter with the luck to have been named President of  Audi America at the right time.

But history shows he brings serious street cred to Cadillac. In a 20 year career at Audi, he turned around the troubled brand in three countries — first in South Africa, then in Japan, and finally, in the U.S. where he oversaw Audi’s resurgence, increasing sales from just under 80,000 in 2004 to approximately 139,300 in 2012 .

His short stint of two years at Infiniti surprised nobody as the brand’s parent company, Nissan, is notorious for keeping its folks on a short lease.

With Cadillac, de Nysschen takes over a brand starving for leadership. Three chiefs in two years, and the last one, Bill Ferguson, had come over from D.C. where he had been the automaker’s top lobbyist. Shortly taking over Cadillac, Ferguson found himself back in D.C. helping Barra with the ignition recall scandal.

Bloated Inventories

Meanwhile, Cadillac sales fell flat in 2014, a year after it had begun showing real promise. Sedan sales crashed following stunningly inept pricing strategies leaving dealer lots crammed with product. Even recent aggressive incentives have failed to help dealers move the ATS, XTS and CTS vehicles off their lots.

Dealers can expect, however, more targeted and aggressive moves over the next few weeks from Cadillac to help ease the pressure of bloated inventories — inventories whose day supply is more than triple that of its European competitors.

That’s for the next couple of months. The next couple of years could become painful for dealers.

Reducing Dealership Count

It’s clear that de Nysschen plans to bring Cadillac’s production into alignment with more realistic sales goals. The problem is, Cadillac has 900 dealerships to feed, so to speak. On paper, its dealers will average less than 200 sales per franchise by the end of 2014 — without stripping out fleet sales, Cadillac dealers will average about 15 sales a month this year.

That number is misleading as most of Cadillac sales are driven by its top 100 dealerships. And even then, it’s the top 20-30 dealerships that really are the big sellers for Cadillac.

It makes sense that the next couple of years, GM and de Nysschen will make aggressive moves to significantly prune the number of Cadillac dealers in the market. That strategy could take many forms but as the industry has seen when other brands seek to prior moves to reduce the number of dealerships, it can get ugly and painful.

Through August, nine Cadillac dealerships changed hands according to data tracked by The Banks Report.

Kerrigan Advisors pegged Cadillac’s blue sky multiples to be between three to five in its most recent Blue Sky Report. Meanwhile, Haig Partners had Cadillac in the 3.5 to 4 range for blue sky in its mid-year report.

Both reports take a dim view of Cadillac’s prospects of becoming a valuable brand in the next couple of years.

In addition to reducing the number of stores, look for de Nysschen to aggressively upgrade the Cadillac dealer experience for customers — both in facility upgrades and high-end customer experience.

Controversial Moves

If de Nysschen is as good as his history suggests, Cadillac’s prognosis for the long term is good. Already, since the announcement in early July of his hiring, he has made several moves. But some of the moves have been controversial.

Last week, he brought Jim Bunnell from Europe to head up Cadillac’s North American sales. He also has put together a leadership council of top GM executives to help guide the brand, but also cementing a position at GM that ensures he has the ear of its top marketing and financial executives.

More importantly, de Nysschen convinced Barra and Ammann to let him establish Cadillac as a separate business entity within GM. That includes the controversial move of taking Cadillac’s headquarters from Detroit to New York City’s SoHo district.

The move to New York is window dressing, in our opinion. History has shown moving headquarters (Volkswagen to Washington D.C. from Detroit, Lincoln from Detroit to Irvine, CA) doesn’t affect a brand’s sales. Moving to New York is just noise and has created an outcry here in Detroit.

The scuttlebutt here in Motor City is that de Nysschen didn’t want to live in Detroit and preferred New York. There is probably some truth to that — he does have a reputation of being someone who enjoys the big city and new cultures. If it helps keep him at Cadillac, then it probably is a good thing. The company line at Cadillac, though, is that de Nysschen made the move because Cadillac needs to focus.

New Product

Other moves will be on the product side. It’s telling that Cadillac does not yet have the all-important compact cross utility vehicle (although Buick somehow managed to finagle one from GM), so we expect to see an announcement along those lines soon, probably slated for sometime late in 2015.

A redesign of its mid-size SRX CUV reportedly is coming in the third quarter of 2015 — it’s already old and light years behind competitors, even though it is Cadillac’s top seller.

A high-end rear-wheel drive sedan dubbed CT6 is scheduled for late 2015 will usher in a new era of naming conventions for Cadillac. GM has high ambitions for the CT6, hoping it targets BMW’s 7 Series, the Audi A8 and the Mercedes Benz S-Class.

If de Nysschen gets really bold, look for him to push for engine upgrades for Cadillac — but that will require significant financial investment from GM so a move like this is less likely.

For dealers who are in that top fifty or so of Cadillac’s upper echelon, and who are well-capitalized, it makes sense to hang on. But for the rest, it may be time to look for an exit strategy, while they still have some say in the matter.

 

 

 

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