Dealer Arbitration Screwing Up GM's Cadillac Dealership Strategy
GM’s newly-permanent Chairman/CEO Ed Whitacre balked visibly when asked following his self-coronation if the dealer cull arbitration process would hurt GM’s chances of success this year. “I’m not sure it will weaken us,” was his half-hearted response. Whitacre’s hesitation was a bit of a surprise, considering that GM is taking a far more tolerant attitude to the arbitration process than Chrysler. But, as Automotive News [sub] reveals, GM’s downsizing was highly focused on its Cadillac brand, and if arbitration results in widespread reinstatement, Cadillac could find itself stuck with a number of small-town dealers it doesn’t want.
A year ago, when Cadillac had 1,422 dealerships, GM announced that it would be cutting the brand to 500 dealers, bringing the sales network closer in line with its European competitors (Mercedes and BMW each have fewer than 400 dealers). The 900 Cadillac dealers cut in the dealership cull made up nearly half of all GM’s bankruptcy-era dealer shutdowns.
According to a lawyer representing culled dealers, GM cited “networking viability and throughput issues,”as the reason for closing most Cadillac dealers. “It means GM wanted to sell more cars through fewer dealers,” says Anthony Giardini, general counsel of the Committee to Restore Dealer Rights “It has nothing to do with performance. GM is saying we just don’t want to be in that market.”That means the arbitration process might be more likely to find in favor of culled Cadillac dealers, saddling GM with rural dealerships for a brand that targets sales in coastal, urban communities. In contrast, non-Cadillac dealers were typically culled for more tangible reasons than the “networking viability and throughput” concerns, meaning they might be less likely to be reinstated.Thus, the central question of the arbitration process will be the validity of GM’s desire to migrate Cadillac retailers to urban areas. While GM leadership clearly feels that this is the path to competing on a more even footing with its European and Japanese competitors, dealers vehemently disagree. “The decision to have Cadillac abandon small-city and town markets where it dominated as a luxury brand to concentrate on large metros where it does not is the automotive equivalent of New Coke,” says one Virginia-based dealer.If arbitrators agree with sentiments like that, GM could be forced to rethink its entire retail strategy for Cadillac.
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