'Handful' of Michigan Cadillac dealers take a buyout rather than sell EVs

Written by:
Jamie L. LaReau
Detroit Free Press
December 12, 2020

For Cadillac of Novi — the nation’s top-selling Cadillac dealership — it was a no-brainer when General Motors’ luxury brand asked it to ante up $200,000 for upgrades to sell and service a future full-line of electric vehicles.

“Do I want to spend the money? No. But do I know I need to spend the money to be part of the solution and not be a problem? Yes,” said Edward Pobur, executive manager of Cadillac of Novi. “We’re one-million percent in.”

Cadillac of Novi sells about 3,500 new and used cars a year and Pobur believes EVs are the future.

But for a dealership in a smaller market that sells 75 new and used Cadillacs a year, such as Dave Kring does, it’s a tougher decision.

“I don’t know yet. I am waiting to talk to Cadillac,” said Kring, owner of Dave Kring Chevrolet Cadillac in Petoskey. He added that if the investment is limited to $200,000 over time, it’s doable.

Nationally, 170-180 of Cadillac’s 870 dealers, or about 20%, have now taken buyouts that range from $300,000 to $700,000 to give up their franchise rather than make the investment for tools, training, equipment and charging stations to sell and service EVs, a person who’s familiar with Cadillac’s plan told the Free Press.

There will probably be a few more who opt to sell their franchise back to Cadillac, a dealership buy-sell expert predicts. There are less than 10 Cadillac dealers in the country still in-discussion with the brand about a buyout despite a Nov. 30 deadline, the person familiar with the plan said. The person is not being named because there was no authorization to speak to the media.

But in Michigan, only “a handful” of Cadillac’s 36 dealerships here have signed a buyout agreement,. Most are investing in Cadillac’s EV future, the person said.

Cadillac’s dealer strategy
For the dealers investing in Cadillac, they must begin putting in Cadillac’s EV requirements by the second-quarter of next year. The upgrades must be completed before Cadillac’s Lyriq all-electric SUV comes to market in 2022, said Cadillac spokesman Mike Albano.

“We’ve said it’ll be about a $200,000 investment for equipment, chargers and training, forklifts and other tools,” Albano said.

As to how many have taken a buyout, Cadillac declined to comment, but Albano said, “We are still finalizing discussions with a few dealers throughout the country.”

Dealers who won’t make the investment are offered a “transition agreement,” he said. The offer was first reported by Automotive News. Albano said the amount varies by dealer and he declined to provide exact numbers or names of dealerships taking the buyout.

Cadillac offered buyouts at the urging of its dealer council members who said not all dealers will want to invest to sell electric cars, Albano said. GM has said Cadillac will have an all-electric lineup by 2030.

Since about October, Cadillac officials have met with every single dealer in the network, either in person or on the phone, to discuss how to proceed.

“We want to do what’s right for the dealers as we move into this new future for Cadillac,” Albano said. “In order to take care of the customer properly we need to make some changes.”

Albano said there’s a reason for the short timeline for dealers to decide.

“Some of these discussions are still going on, but we did that so that we can start rolling out some of these standards in the first quarter next year,” Albano said. “When we launched the Lyriq, we heard, ‘Well. it’s still two years away.’ We need those two years to prepare the dealers, and consumer acceptance is going to grow, so those two years will go fast.”

Not enough to ‘make us go away’
Cadillac dealers in the state who’ve committed to sell Cadillac’s EVs say they believe demand for the future vehicles will grow. Plus, they are loyal to the brand’s heritage here. Cadillac was founded in Detroit in 1902.

“I would be shocked if someone was not in,” said Mark Naszradi, executive manager of Suburban Cadillac of Plymouth. “Cadillac is part of Detroit, so I’d be shocked.”

There is also the domestic-brand bias in Michigan by virtue of the fact that GM is based here.

“I would think you’ll see fewer in Michigan take the buyout,” than in other parts of the country, said Erin Kerrigan, managing director of Kerrigan Advisors, a firm that specializes in dealership buy-sell transactions.

It’s for those reasons many are investing. But there is also the reality that, for some, “what they’re supposedly offering isn’t enough to make us go away,” said David Bishop, vice president of Bishop GMC Cadillac Inc. in Cheboygan.

Dual brand stores
Bishop’s store is located about 16 miles southeast of the Mackinac Bridge. He sells about 35 new and used Cadillacs a year.

“We do well with the folks who spend their summers up here, but we’re in a more income-suppressed market compared to Cadillac of Novi,” Bishop said. “GMC is what pays the bills for us.”

Bishop’s store sells about 300 total GMC vehicles annually. So he will invest in Cadillac rather than take a buyout because it wouldn’t make sense to be a standalone GMC dealership in a small market.

“And the valuation of what they’re offering wouldn’t make sense — $300,000 to $500,000, that’s lower than what the franchise would be worth. These are multimillion businesses and once you take away the brand there’s no value,” Bishop said noting his two brands share a showroom.

Bishop said those Cadillac stores that also sell Chevrolet are the ones “thinking hard about” taking a buyout because Chevrolet generates enough sales volume to be a standalone store.

But one such store, Allen Chevrolet Cadillac in Monroe, isn’t giving up Cadillac despite being a smaller dealership in metro Detroit that sells about 250 total Cadillac vehicles a year, said John Allen, vice president of the dealership.

“We do sell more Chevrolets than we do Cadillacs, but whatever Cadillac does, Chevrolet is a couple of years behind them so this will give us a head start,” Allen said of his investment. “The buyout is a nice amount of money, but we believe GM has a good brand.”

Albano said some investments made at dual franchised stores might be able to be multipurposed. For Bishop, who signed up to be a GMC Hummer electric pickup dealer, GMC requires him to buy a forklift to handle heavy electric vehicle batteries. He hopes to use that forklift for Cadillac too, he said.

Few dealers is good

There is a benefit to Cadillac buying out 20% of its dealerships, Kerrigan said.  Fewer stores will increase sales at the stores that remain, she said.

“An average Cadillac dealer sells 144 new vehicles per store a year — so that’s really low,” Kerrigan said. “Part of that is because a lot of these franchises are dualed with other franchises or in smaller markets. So for some, if they receive a nice sum for the franchise, they’ll sell it.”

By comparison, average new-car sales per store for Lexus is 1,100 new vehicles a year. Lexus has the smallest U.S. dealership network with about 242 stores, Kerrigan said. For BMW, the average dealer sells 769 new cars a year and BMW has 348 dealerships in the United States.

For this reason, Suburban’s Naszradi said the buyouts are a win-win for dealers.

“There were too many Cadillac dealerships in the nation anyhow,” said Naszradi. “This allows some dealers to exit and get a paycheck. And it will increase our per-store sales too.”

Naszradi started to remodel Suburban Cadillac of Plymouth this past summer. Suburban bought the facility, which used to be Don Massey Cadillac, in 2014.

“We knew Cadillac’s direction some time ago when it comes to electrification, so our plans for our new facility included those plans to go forward with EVs,” Naszradi said. “We’ll incorporate everything that we know that is coming into the facility now and as changes come over the next 12 months, those will be incorporated into the new facility.”

He said Suburban Cadillac of Troy and Suburban Chevrolet Cadillac of Ann Arbor are also investing in Cadillac.

Similarly, Shaheen Cadillac of Lansing built a new store that opened in September. It already has a lot of the EV requirements in it, said Ralph Shaheen, president.

“What we don’t have incorporated, such as the power stations, we have conduit laid … all the electrical is stubbed in so we just have to buy the charging stations,” Shaheen said. “We have to buy an eight-ton forklift, do the training and some special tools, but we’ve already spent $50,000 or $60,000.”

The ‘Game Changers’
For Ryan LaFontaine, CEO of LaFontaine Auto Group in Highland, he calls the future lineup “game changers.” LaFontaine Cadillac sells about 2,000 new and used vehicles a year.

“The ones who aren’t going to make the investment, you have to ask if they were really engaged in the first place? I don’t mean that with disrespect, but these vehicles are amazing,” LaFontaine said, adding he has had a peek at some of them.

About two months ago, he said, Cadillac contacted him. He had no hesitation in saying yes to the investment in EVs.

Since electric vehicles don’t have engines, but rather run on motors and are propelled by batteries, you may think they don’t require as much service as internal combustion engines. But the service they do require is technical and poses its own challenge.

“The weight of these batteries alone make it different to service,” LaFontaine said.

LaFontaine will buy a forklift to lift the batteries, which could weigh 500 to 1,000 pounds each. Also there will be new charging stations, tools and the cost for training people, he said.

“It’s a leap going from an internal combustion engine to battery,” Cadillac’s Albano said. “There are safety issues that need to be taught. And the EV customer is a very savvy customer so making sure our salespeople understand the car, the competitive landscape, the types of questions an EV customer asks is different from a regular customer … there’s a lot of training.”

‘Going nuclear’

There is a big unknown in all of it though. What kind of consumer demand will exist for electric cars in only 10 years?

At 57, Pobur of Cadillac of Novi said he’s an “old school guy.” He understands Cadillac’s vision, but he believes there will still be some internal combustion engines in the lineup for quite awhile.

“Also the service lane will need to service internal combustion engines,” that will remain on the roads, Pobur said. “What does my world look like 10 years from now? It is all electric, that’s what they’re saying. Is it feasible? Meh. I will know better five years from now, but right now it’s so new to us. We’ve never had a full lineup, so I am excited about it.”

Shaheen of Shaheen Cadillac of Lansing said he believes there will be healthy consumer demand for EVs by 2030.

“It’s a new paradigm,” Shaheen said. “As people get used to it, it’ll become more accepted and technology gets cheaper as it evolves. What scares me a little bit, not for Michigan, but in California is they have rolling brownouts now. Maybe we need to go nuclear? I think stuff like that has to come back.”

But in Bishop’s neck-of-the-woods near the Mighty Mac, he does give pause.

“The Meijer store in Gaylord does have charging stations, but it’s not a wide-sweeping initiative,” Bishop said. “They’re popping up here and there. It’s going to be an interesting transition. But we’re on board for it so we’ll see how it goes.”

About Kerrigan Advisors

Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers nationwide. The firm advises the industry's leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Kerrigan Advisors has represented some of auto retail's largest transactions and advised more of the largest dealership groups in the US than any other buy/sell firm in the industry. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, the firm does not take listings, rather they develop a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors' sell-side advisory and capital raising services, the firm also provides a suite of consulting services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.

Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors' signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments.—To download a preview of the report, click here.—The firm also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail.—To access The Kerrigan Index™, click here.—To read the—2023 Kerrigan OEM Survey, click here.—Kerrigan Advisors also is the co-author of NADA's Guide to Buying and Selling a Dealership.

Share this post
In The News

We look forward to connecting with you.

Contact us to learn more about Kerrigan Advisors’ sell-side services.
All of our conversations are 100% confidential.