GM General Motors Company

By Gautham Nagesh 

Groups representing several Cadillac dealers are urging General Motors Co. to rethink a new retail strategy for the luxury brand, saying the plan is an attempt to steer around dealer franchise laws that have long prevented auto makers from closing dealerships.

In a letter signed by dealer associations from seven states, Cadillac President Johan de Nysschen was accused of creating a program that they consider "is the most serious attack on their survival they have seen." Mr. de Nysschen has been in the process of rolling out "Project Pinnacle, " which aims to classify dealers into five groups and limit the inventory or showroom space that the smallest dealers need.

Project Pinnacle would result in the creation of virtual dealers where the smallest dealers would have no inventory and rely on virtual reality headsets for much of the sales process. Many of these stores would be rural Cadillac dealerships that sell less than 100 cars annually.

While GM significantly reduced its dealer count in bankruptcy court seven years ago, its 925 Cadillac stores vastly outnumber the dealer bodies for luxury rivals selling far more cars, including BMW AG and Toyota Motor Corp.'s Lexus brand. GM had flirted with closing more Cadillac stores, but opted to keep the footprint large because of the brand's unique access to rural markets where foreign luxury brands weren't represented.

State franchise laws limit GM"s ability to take further action on shrinking its retail footprint, and Mr. de Nysschen's plan was designed to reshuffle the way those dealers operate on a voluntary basis.

Dealers, however, say the plan isn't voluntary. "[I]n a world where every Cadillac dealer competes with every other Cadillac dealer on the internet, there is nothing voluntary about the program," the letter, sent Aug. 3, says. Dealer associations from seven states including New Jersey, Wisconsin and Connecticut cosigned the letter, and it was first reported by Automotive News.

The letter argues that there will be a roughly 8% difference in the effective cost of vehicles between top-tier dealers and those that don't participate, which translates into thousands of dollars per vehicle. They say 60% of dealers saw an immediate and pronounced drop in the value of their franchises after Project Pinnacle was announced, and said those stores are in danger of being closed.

A Cadillac spokesman said the company is working on a response to letters it received.

Cadillac sold 87,572 vehicles in the U.S. through July, down 8% from the same period a year ago and equating to under 1% market share. That is less than half the volume sold by Daimler AG's Mercedes-Benz, BMW and Lexus during the same period.

Write to Gautham Nagesh at gautham.nagesh@wsj.com

(END) Dow Jones Newswires

August 08, 2016 18:31 ET (22:31 GMT)

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