Published on 5 December 2020 |
by Jennifer Sensiba
December 5, 2020 after Jennifer Sensiba
The Wall Street Magazine reports that about 150 of Cadillac ‘s 880 dealers chose to stop selling the brand’ s cars in order not to fall into EV sales. Distributor upgrade costs could be a determining factor, but dealers remain a barrier to electrification.
As we reported earlier, General Motors gave Cadillac dealers a choice: either to pick up the dealer’s innovation to sell only electric vehicles, or to accept a buy-back of $ 500,000 to $ 1,000,000 to abandon its franchise. Dealers who choose to continue selling the brand must upgrade their repair equipment, install electric vehicle chargers, perform other upgrades, and receive training to sell what will become GM’s first all-electric brand. We now know what happened: about 17% of Cadillac dealers used the buyout option.
The deal does not issue dealers immediately. First, they will gain access to the new Cadillacs by the end of 2021 and will be able to receive major bids on used Cadillacs at auctions until 2024.
After Trip, smaller volume dealers would not lose much because the purchase offer is equal to what they would earn in 5 years. In accordance with Wall Street Magazine, many of the distributors who opted for buy – outs were smaller and often had a dealership selling several GM brands. As Cadillac’s sales were only a small part of their overalls’ sales, paying for the biggest upgrades was certainly the most expensive option.
On the other hand, lawyer Len Bellavia said Car news that the value of the franchise alone is more than $ 300,000 to $ 500,000, and for merchants looking at long haul, the money involved in the buyout offer is simply not enough. “If I am 50 years old and plan to hold [the dealership] another 20 years and earning half a million a year, how do $ 300-500,000 make me healthy? Any franchise on the worst day could be worth more than a million dollars, no matter how many car dealers sell. “
There are other reasons why buying might seem like a better choice, not just the cost of upgrading or the dealer not being specifically invested in the brand’s future.
First, dealers usually make a profit on the service side. While there are dealers who make a healthy profit from sales, most use the sales level as a loss leader. Collecting warranty repair money, selling customer service contracts when they buy a car, and a variety of other services is what keeps most dealers afloat, while selling new cars is just a way to get people in the door and build relationships. Even used cars tend to be better earners than new sales.
With electric vehicles, you can earn much less money for service. The amount is certainly not zero, because electric cars still have replaceable tires, suspension parts that need maintenance and repair to perform the warranty. It hurts dealers that there is not enough maintenance for internal combustion engines. There will be no need to change the oil, and simple gearboxes or other parts of the drive units are usually maintenance-free almost as often as multi-speed automatic transmissions.
Thus, losing a profit in the most profitable part of the dealer, redemption looks like a better deal.
Tesla’s continued move to countries that do not currently please them may also be a small factor. As described above, Tesla cannot service sales or service facilities in many states because direct sales from the manufacturer to the customer are not permitted under state law. This can make life difficult for Tesla owners.
“But why is Tesla not just a franchisor?” One may ask. The answer is that Tesla knew that dealers were reluctant to sell EV because of the lost service business, so they decided to stick to direct sales despite the challenges. If states continue to exempt electric vehicle manufacturers to sell directly to customers, then an EV-equipped Cadillac franchise alone is not worth it as it once was, and this may be one less factor in why dealers chose to buy.
As my colleague Steve Hanley pointed out, all this may prove to be a good result for the Cadillac brand. By reducing dealers (especially “we also sell these” dealers), Cadillac reduces its costs and helps focus potential customers on the brand itself. This increases profitability not only with reduced costs, but with lower sales to GM brands that still sell internal combustion models.
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