Cadillac is dropping hundreds of dealers who aren’t ready for electric cars

Is the future of Cadillac electric?
Is the future of Cadillac electric?
Image: Reuters/Rebecca Cook
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Cadillac dealers must quickly wean themselves off gas-powered vehicles. Rory Harvey, the company’s global vice president, told Reuters the General Motors-owned brand expects to have only 560 US dealerships by the end of the year, representing a 40% drop from three years ago.

The loss of Cadillac dealerships comes as GM seeks to make most, if not all, of the brand’s offerings electric by 2030. The transition to EVs is estimated to cost each Cadillac dealership $200,000 to $500,000, and GM has spent $274 million buying out dealers who aren’t ready to make the switch. Unlike traditional car brands, Tesla doesn’t rely on franchised dealerships, instead selling cars directly to customers.

GM is one of several carmakers trying to catch up to Tesla

For years Elon Musk’s car company has dominated the EV market, representing about two-thirds of battery-powered electric vehicles sales during the first half of this year. Tesla, Chevrolet, and Ford together represent about 80% of the US market. But Tesla’s market dominance hasn’t stopped other brands from trying to catch up. If anything, Cox Automotive analyst Michelle Krebs told Quartz, the EV maker “has really pushed its competitors to get into the game from the very start.”

For GM this meant pledging to release at least 30 EVs by 2025, including Cadillac’s 2023 Lyriq, which sold out in 10 minutes when it was put on the market in September. GM CEO Mary Berra told CNBC in October she believed the company could “absolutely” catch up with Tesla in EV sales by 2025.

But not all US dealers are quite as enthusiastic about the transition to EVs, and some have expressed concerns their profit margins will decrease if they go all-in on electric cars because the service fees tend to be lower. A 2019 analysis by the consulting firm AlixPartners found EV adoption could cause dealers to lose $1,300 in service fees over the life of each battery-powered electric vehicle they sell.

Even if dealers decide to invest in EV certification, customers are not yet embracing electric cars quickly enough for them—EV sales still represent less than 2% of US auto sales overall.

US is heading toward EV transition

Cadillac’s decision to buy out dealerships highlights the relative impatience of manufacturers, and the intransigence of traditional sellers. Neither has a choice, however: US president Joe Biden has said he wants half of new vehicles to be electric by 2030, and the $1 trillion infrastructure package passed by Congress on Nov. 5 includes $5 billion to expand EV highway charging infrastructure.

The transition will change almost every aspect of the US automotive industry. But while there’s sure to be an impact on dealerships, they also employ more Americans than any other service in the automotive sector, and are unlikely to become obsolete anytime soon.