Cadillac Carries On With New Dealer-Compensation Project

NEW ORLEANS – Cadillac is moving ahead with its Project Pinnacle program for dealers after a couple of delays and a series of refinements, clarifications and adjustments, says Johan de Nysschen, the brand’s president who is trying to revitalize the luxury nameplate.

He also describes himself as “irritated beyond belief” by claims that Cadillac is trying to thin out its 925-dealer network.

“There is no truth to that,” he says after a closed-door franchise meeting with dealers at the National Automobile Dealers Assn.’s annual convention here. “We never had a program to eliminate dealers.”

The General Motors luxury brand is scheduled to launch Pinnacle on April 1. Among other things, it changes the system of financial rewards for dealers who meet brand expectations. The program will put more emphasis on the customer experience.

“The true intent is to introduce brand standards so we can raise the bar of the customer-experience delivery and compensate dealers for it,” de Nysschen says.

He praises the brand’s dealer council for its overall cooperation. “We have our point of view, the dealer council has its point of view, but we are examining issues together and finding a way to improve the program and make it work.”

Some elements of the brand standards “have been modified to be more realistic inside the business environment we’re in,” says Cadillac’s dealer council chairman Will Churchill, a Texas dealer. “It was a great collaborative effort.”

"Great collaborative effort," Churchill says.

Some dealers at the franchise meeting expressed anxiety about the extent to which Cadillac will monitor dealers to ensure they meet brand expectations, de Nysschen says, adding that there’s an appeals process for dealers who believe they don’t get what they feel they deserve.

“But the verification process is not punitive,” he say. “It ensures we are achieving this important objective of the program. Obviously, there’s no point in having standards if you don’t validate them.

“There’s not so much a concern with the program itself, but how it will be administered. Dealers want to know they’re not at risk of waking up in the morning, and a sizable chunk of their compensation is gone.”

Standards focusing on the customer experience both in the sales and service departments include training, dedicated service writers, courtesy cars, loaners, facility upkeep and roadside-assistance programs.

The dealer council, representing all dealers, had questioned whether it was fair to expect smaller dealers to adhere to the same exacting brand standards as larger dealers who sell the bulk of Cadillac’s vehicles.

“From an OEM and brand-custodian point of view, I would say, yes, there is one standard that must be maintained,” de Nysschen says. “But from a pragmatic business-partnership point of view, we wanted to give our smaller dealers an avenue to have easier access to the money.”

Consequently, Cadillac developed tiers of standards, based on the size of dealerships. The smaller dealers, because of their circumstances, have lower bars compared with their larger counterparts, but nonetheless have standards that must be met to get incentive money, he says.

“Nothing prevents them from going to tier one if they want to, but we want to prevent our tier-one dealers from going the other way,” de Nysschen says. “The small dealer could still choose to comply with the tier-one standards and have access to that full compensation bonus. Each dealer can decide the best tradeoff.”

The Mississippi Motor Vehicle Assn. questions whether the tiered compensation violates state franchise laws.

In response to that de Nysschen says, “We need to use the opportunity to explain exactly how the program works, and see where it goes. The program gives dealers more access to financial support in return for making some investments and commitments in terms of performance.”

The perception that there’s a tilted tier structure comes from Cadillac’s efforts to accommodate smaller dealers, he says. “The alternative would be to have one standard, which would be the highest standard, not lowest. That would make it harder for some of our smaller dealers to derive some of the benefits of the program.”

Florida Cadillac dealer Alan Starling, a former NADA chairman, credits de Nysschen for not rushing Project Pinnacle through and for working with the dealer council.

But Starling says many dealers have doubts about a new program that eliminates such traditional rewards such as “holdback” money based strictly on sales performance.

“It’s hard to try to make people feel the new plan will be better than the old plan,” Starling tells WardsAuto. “That’s the discomfort.”

When the new program starts, how many dealers will be in a position of getting their full bonuses?

“In the beginning, not all stores will,” says de Nysschen, who previously headed Audi in the U.S. and Infiniti worldwide. “All will have the opportunity. Time will tell. From experience I’ve had with doing a similar program in previous lives, it usually doesn’t take longer than two quarters. Dealers learn very fast.”

Pinnacle’s monitoring process is designed to spot where dealers may be falling short and then help them remedy that, he says. “The program succeeds when we put money into the pockets of our dealers. It fails if we don’t.”

Cadillac sold 170,006 vehicles in the U.S. last year, about 5,000 fewer than in 2015.

The brand’s dealer network extends to markets big and small, both urban and rural. Competitors such as Mercedes-Benz, BMW and Lexus (the top three of U.S. luxury brands in that order) have fewer dealers, most of them in major markets.

“Our dealer network is very large,” de Nysschen says. “If you came to the market today, you would not design a dealer network this large. But it is the reality of Cadillac.”

He had proposed that small dealers selling fewer than 50 cars a year rely more on the use of virtual-reality technology and less on stocked inventory to show products to customers.

That led to claims Cadillac actually was trying to put those dealers down.

Says de Nysschen: “Some people concluded, ‘Well, if they are not allowed to carry inventory anymore and don’t show vehicles on the showroom floor, that’s just a Machiavellian plot to close them down.’

“Quite the contrary. It was trying to harness new technology and use a new business model to make them more profitable.”

Cadillac last year offered a buyout plan of up to $180,000 to its smallest dealers. Only 20 took it.

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