GM’s Plan To Increase Its Luxury Sales Meeting Strong Resistance In The U.S.
General Motors (NYSE:GM) has a successful luxury brand in Cadillac. However, in recent years, sales of Cadillac have lagged behind those of BMW, Mercedes-Benz and Toyota’s luxury brand Lexus.
This is highly important as the U.S. is the biggest luxury car market in the world and luxury car sales make up close to half of the auto industry’s profitability despite contributing only 10% of overall sales. GM has been working hard at improving the sales of Cadillac in the U.S. and part of that effort is its revamped dealership program called Project Pinnacle. This initiative ties the compensation given by the company to dealers to customer satisfaction and replaces a compensation structure proportional to sales made with one that has multiple tiers depending on the quality of customer service offered. In order to obtain the highest compensation on offer dealers will have to make significant upgrades to their facilities and improve the quality of customer service they can offer.
The proposal is meeting with a lot of resistance among the California New Car Dealers Association, the U.S.’s largest car dealership association. According to the group, the new proposal discriminates against smaller dealers and violates many franchise laws, including automatic compensation for providing car buyers with a full fuel tank and a 30 day period for the payment of incentives. GM’s management, on the other hand, believes that the plan is “legally bulletproof” and an important step towards raising Cadillac’s profile in the U.S. luxury car market.
In 2016, sales of the Cadillac brand have declined by 6.2% on a year to date basis, despite posting gains over the last couple of months. In China, the world’s second largest luxury car market, however, sales of Cadillac have grown much faster. In August, China sales grew by 94% on a year over year basis and 31% on a year to date basis. This largely the outcome of the newly launched XT5 and CT6 sedan. Combined sales of the two models in the U.S. stood close to 22,000 units at the end of August, while China sales exceeded 35,000 units. Whether the company can resolve the dispute with dealership associations in the U.S. might then be key to achieving similar sales numbers in the U.S. as well.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors
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