Cadillac is buying out dealers that don’t want to modernize to compete with Tesla

Last year, Cadillac began offering its dealers cash in exchange for giving up their franchise rights if they didn’t want to be part of the new auto industry that includes electric vehicles. In other words, invest the money to modernize your dealerships or get out of the industry. Many chose to take the money and shut it down rather than embrace electric vehicles.

Today, Reuters reported that Cadillac plans to challenge Tesla and its other rivals in the luxury electric vehicle market with a new EV and 40% fewer U.S. dealers than in 2018. Although Cadillac expects to have 560 fewer dealers by the end of 2021 compared to 930 three years ago, however, it still has more US dealers than any other luxury brand.

Rory Harvey, head of global Cadillac brand, said: Reuters that Cadillac has largely completed the restructuring of its US dealer network. It has also opened new dealer showrooms in New York City, Atlanta, Beverly Hills and San Francisco. The largest market is in China and sales there increased 20% in the first nine months of 2021. The article pointed out that Tesla does not have a dealer network and sells its cars directly to customers, and Cadillac’s answer to this is its new virtual showroom, Called Cadillac Live. Harvey said requests through Cadillac Live are increasing, but for now, the company will still sell and service its vehicles through its dealers.

Cadillac Lyric. Image courtesy of Cadillac.

In the summer of 2022, Cadillac plans to launch its first wave of EVs, starting with the Lyric. So far, Cadillac has taken a lot of interest in its new EV – from 216,000 people and counting. On this, Harvey said the interest exceeded expectations. This is good news for Cadillac, and perhaps the interest in a company-produced EV will inspire the company to take EVs more seriously and plan for potentially large-scale production.

If Cadillac wants to compete with Tesla, as the article emphasized, it will have to do more than modernize its dealer network. Ford’s CEO, Jim Farley, briefly hinted that dealerships are complex in terms of selling EVs. Doubtless. Farley pointed out that Tesla’s direct selling model is so much simpler that it doesn’t have a lot of complexity with selling and delivering vehicles to its customers. He also noted that the pricing was straightforward and non-negotiable. I really think he was trying to address the general problem a lot of customers have with dealers trying to scam them, but in a polite or even positive way that doesn’t downplay the dealership industry.

The car dealership model is very outdated and for it to succeed, it needs more than modernization. Dealers and their employees should be interested in selling electric vehicles. Earlier this year, I was on a podcast with Connecticut State Senator Will Haskell, and one thing that took me away from it was that dealers really don’t want to let go of the status quo or the control they have over their markets. They don’t want to compete with Tesla. In the case of Cadillac, this is very clear, as some of its dealers chose to take the money and stop selling Cadillacs rather than embrace the electric car.

Senator Haskell also touched on this. Dealers are too comfortable with the status quo, which has long been the only way a customer could buy a new car, and they abused that exclusivity with sneaky race-to-the-bottom sales tactics. Senator Haskell briefly mentioned a poll that took place in which most residents agreed that EVs should be able to compete in a free market.

“So the car dealership model, which has been around for many, many decades – almost a century – doesn’t work for everyone. The status quo doesn’t work for everyone, which is why I think this bill is so popular, especially among those groups.”

He added that many dealers felt they have a superior business model and that customers are happy to come to them. He said he didn’t think this was true, but it should be up to the customer to decide. Watching Tesla’s success without any form of paid advertising is a clear indication that customers are making a decision and that it is the easiest way to buy an EV. Buy directly with no price negotiations, you pay what the website tells you to pay and that’s that. No surcharges, no extra costs for wheel nuts or paperwork.

This is the change that customers demand, and for dealers to succeed, they must adapt to what customers want.


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