Cadillac President Johan de Nysschen says the brand has "too many" U.S. dealers, and he hopes to convince smaller Cadillac dealers to create downsized, standalone "boutique" stores to improve the luxury make's image.
While he has no plans to reduce their ranks, De Nysschen, who joined Cadillac in the fall, said the brand's dealer organization is the "single biggest deficiency that Cadillac has" when compared to luxury competitors.
GM's luxury brand has 928 dealer franchises in the United States, which is down from 1,422 at the end of 2008 before GM's 2009 bankruptcy. But Cadillac's main luxury rivals in the U.S. — BMW, Mercedes-Benz, Audi and Lexus — all have hundreds fewer U.S. dealers and all sold more vehicles than Cadillac last year.
His idea behind the boutique stores — which has not been pitched to dealers yet — is to encourage some to invest in smaller, standalone showrooms featuring maybe two to five cars instead of Cadillac's entire lineup, de Nysschen said last week during an interview with The Detroit News. That would help bolster the brand and dealer profitability, he said.
He will meet with dealers Saturday at the 2015 National Automobile Dealers Association conference in San Francisco.
"What I'd like our smaller dealers to do is consider an approach where we say to them, 'Listen, to be a standalone Cadillac store, we are no longer going to demand that you build us a 15-car showroom and invest $10 million,' " he said.
"We want to create a concept that's built around the notion of a small boutique shop," he said. "The idea is you don't have to be a large, Taj Mahal mausoleum brand store to be classy and sophisticated and premium. You can do a small two-car showroom with an investment amount that is kind of appropriate to the size of the sales opportunity in their local market, and we harness technology to supplement then what we can offer."
That could include creating a virtual showroom with TV screens and 3-D images to "help customers then experience what they can't physically touch," de Nysschen said.
De Nysschen did not offer a timeline on the plan. But Cadillac spokesman David Caldwell said it probably would not begin this year.
The effort is part of de Nysschen's mission to build up the Cadillac brand and eventually its sales. He and GM management want dealers to offer more dedicated and premium service to customers. Creating standalone spaces with dedicated staff would help Cadillac compete with key competitors and reduce the phenomenon de Nysschen calls "selling Cadillac out the back door of the Chevrolet store."
"With our very large dealer network … we so fragment the available volume, that many of our stores are unable to reach critical mass in terms of volume and their profitability to afford the investment in the kind of ... facilities that is the custom and practice for the sector," de Nysschen said.
IHS Automotive analyst Tom Libby said it is important to separate stores from other makes in order to build and grow a brand.
"It makes sense. It's a challenge to convince the retailer to invest a lot of money," Libby said of Cadillac's boutique store idea. "It sounds like a compromise."
Some Cadillac dealers are worried about comments de Nysschen has made regarding having too many dealers, said Richard Sox, a lawyer in Tallahassee, Florida, who works with some Cadillac dealers.
"Dealers are obviously concerned with the idea that Cadillac may be interested in reducing its dealer body," Sox said, referring to conversations he has had with some clients.
De Nysschen said while the number of Cadillac dealers he inherited is more than needed, there are no plans to thin franchises because legal issues would prevent it.
"We are not at war with our dealer network, and we want to work together to solve this problem," he said.
But Sox said he thinks Cadillac would be successful in cutting some dealers if it offered a fair buyout program. Automakers also can enforce sales performance requirements to try to reduce store counts, he said.
One western U.S. rural dealer with Cadillac and other GM franchises under the same roof said he would not be interested in building a new standalone facility for Cadillac because it would require different personnel. He said if GM offered a buyout of his Cadillac franchise, he would take it.
Cadillac wants to roll out a business model with dealers that is performance driven and rewards them with bonuses. De Nysschen wants Cadillac sales to hit half a million by 2020. Cadillac's sales fell 6.5 percent in the U.S. last year to less than 171,000. The brand was passed by Audi — de Nysschen previously served as head of Audi of America — for fourth place in the luxury sales race.
GM said about half of Cadillac dealerships — most in major metro areas — have finished facility upgrades under a program GM launched in late 2009.
De Nysschen said many Cadillac dealers have high-quality "benchmark" stores, and he wants to boost the number of big standalone stores from about 200 today to 300. The rest would fall into the boutique stores idea. He said Cadillac would encourage dealers to make investments in their facilities, now that Cadillac has announced plans to invest $12 billion in eight new vehicles by the end of the decade.