About 150 U.S. Cadillac dealerships are exiting the brand rather than making the investments Cadillac is requiring to sell electric vehicles. If electric vehicles are the future of transportation as we are told, auto dealerships may suffer.
While the vast majority of sales at auto dealerships come from new and used cars, about half of gross profits come from the service and parts department. The problem for auto dealerships is that according to Consumer Reports, electric vehicles cost about half as much to maintain as internal combustion engine vehicles.
Few businesses would be able to sustain a 25% hit to gross profit (a 50% drop in service sales which are 50% of gross profit) without falling into the red. You can understand why 150 Cadillac dealers are taking buyout offers rather than sinking the $200,000 in upgrades GM is mandating in order to continue selling Cadillacs.
The WSJ has more:
GM recently gave Cadillac dealers a choice: Accept a buyout offer to exit from the brand or spend roughly $200,000 on dealership upgrades—including charging stations and repair tools—to get their stores ready to sell electric vehicles, these people said.
The buyout offers ranged from around $300,000 to more than $1 million, the people familiar with the effort added. About 17% of Cadillac’s 880 U.S. dealerships agreed to take the offer to end their franchise agreements for the luxury brand, these people said.
Most dealers who accepted the buyout also own one or more of GM’s other brands—Chevrolet, Buick and GMC—and sell only a handful of Cadillacs a month, the people familiar with the effort said.
The skepticism from some Cadillac dealers underscores that, even as investors bid up the value of electric vehicles, questions persist about interest among consumers and the retailers who serve them.
Tesla Inc. has become an electric-vehicle juggernaut by selling directly to customers, without franchise dealers, a model several startups intend to follow. Traditional auto makers, on the other hand, are tasked with overlaying their electric-car plans on dealer networks that today make their money selling gasoline-powered vehicles.
Dealers across brands say they are weighing costly facility investments, such as electrical-system upgrades, against uncertainty about demand for the vehicles, which now account for about 2% of U.S. vehicle sales. Some retailers say they are putting off orders of electric models, worried they will sit too long on their lots.
Even in markets where electric vehicles are more popular, like San Francisco, dealers say the lack of commuting during the pandemic has led to a drop off in demand for cars like GM’s Chevrolet Bolt.
Cadillac global brand chief Rory Harvey confirmed that the company offered buyouts to dealers, but declined to specify how many had taken them or the value of the offers.
“The future dealer requirements are a logical and necessary next step on our path towards electrification,” Mr. Harvey said. Those who aren’t ready to make that commitment are getting fair compensation for exiting the brand, he added.