CADILLAC: Dealers adjust to Pinnacle and await XT4

This year is promising to be a better but still challenging year for Cadillac dealers under Project Pinnacle, the brand's overhaul of dealership operations that marks its first full year in 2018.

Cadillac President Johan de Nysschen has worked with dealers to alter several aspects of the plan since its April 2017 launch, following "many" missing their targets in 2017, according to Will Churchill, Cadillac National Dealer Council chairman.

Churchill, dealer principal at Frank Kent Cadillac in Fort Worth, Texas, said the biggest changes include weighting of CSI scores, retail sales objectives and other requirements of the program such as roadside assistance.

He also noted more transparency on incentives and an ad campaign that debuted this month as changes that should benefit Cadillac dealers, as they await an influx of new crossovers beginning with the compact XT4, which is scheduled to debut next week in New York City.

Churchill, 41, spoke with Staff Reporter Michael Wayland about the council's work on Pinnacle, continuing challenges for the brand and the XT4.

Q: How was 2017 for Cadillac dealers — particularly with the launch of Project Pinnacle?

A: 2017 was a very challenging year for Cadillac dealers. We had two headwinds facing us: The launch of Pinnacle, which was a big change in margin delivery, and also our lineup is not where it needs to be from a model perspective. We're still facing a fast-shrinking luxury car segment, and that's where we have four entries.

'17 was a very, very tough year and, I think, the financial results showed that.

What were the most important changes of Pinnacle heading into 2018?

We wanted to get CSI to play less of a financial impact on Pinnacle and we wanted a more transparent way of coming up with what is the retail's sales objective. We were able to get both of those put in and get a little bit more money into brand standards, which puts more money, hopefully, to the bottom line for dealers. We also got the roadside assistance metric to be a monitored element.

We really just tried to figure out where some of the angst was, or the issues, with the 2017 program and make it better in '18. Johan has committed that he wants this thing to work and he wants it to pay. This isn't a model designed for breakage that the manufacturer gets to keep it. I think that all of the changes that were made show good-faith effort on his part to live up to his promise that Pinnacle will be better than where we stood before we had Pinnacle.

Why was it so important to change the CSI?

Depending on the size of your dealership … you could have one or two surveys that cost you six figures of cash, and it's not right to have one or two surveys have that kind of financial impact on a dealership. Cadillac realized that because that wasn't the intent of it, and then that's where we made the changes.

How open has Cadillac been to changing Pinnacle to help dealers?

Johan made a promise that Pinnacle would deliver a more profitable situation than before Pinnacle. I think that the changes in '18 prove that they are willing to make changes if it is not delivering on that promise. So I would say that Cadillac has been very open and willing to make changes as long as they feel that it's to the benefit of Pinnacle. It's not an emotional decision, it's a factual decision based on data.

Have dealers gotten used to Pinnacle?

I think they've grown accustomed to it. When we make more changes, like we did in 2018, that put another layer on it. But I think it's settled in, and I think it's becoming a way of business now. As opposed to fighting it, I think they're embracing it, understanding it and trying to figure out the best way for them to make it work for themselves.

Have you received any early feedback from the 2018 plan?

I mean, no news is good news. No one is calling and complaining about the changes to anything. We're still only a month and a half into it but really the benefits and the angst around it will happen after the quarter closes and everyone will see where the money shakes out.

Have there been additional discussions about reinstituting the virtual showrooms for small dealers or even the larger dealers?

There has been some talk around the virtual showrooms. What we're looking at doing is maybe utilizing that technology at the auto shows. As you know, manufacturers are pulling out of auto shows. It could be a way for Cadillac to be in more auto shows, have less footprint space and be a technology leader.

I think some of the Tier 1 dealers are looking at the technology, and I think that's where you'll see it manifesting itself is inside of the Tier 1 dealers inside of Pinnacle. I think the idea of the smaller guys doing it, that's just probably not going to be the most effective use of their capital.

What are the biggest hurdles for Cadillac dealers outside of Pinnacle?

There are a couple things facing Cadillac dealers in 2018. XT4 is great, but that's not coming out until the fourth quarter. So we've got three quarters of business that we have to make [money] in and all of our cars are a year older. So that puts a little bit of pressure on the dealers and the manufacturer.

We still have to sell cars in '18, and GM launched some pretty aggressive programs in the start of January, which showed a commitment to trying to help us hit the numbers because if we get too far into the hole, XT4 will be a great car, but it can't do all the carrying itself. We've got to be in a pretty good spot from a volume perspective on a national retail sales level when the XT4 comes out. That's one of the big headwinds: Everything is a year older, and we have at least three more quarters to retail it.

The other thing is we've got to get some advertising that is invigorating the dealer body and jibes with the Cadillac clientele. One of the most important things is a great ad campaign can lift the dealer body and then, in turn, that begins to lift sales.

What has Cadillac done in the early stages of this year to help dealers?

They launched a 60-day incentive play, which allowed us to understand where they were headed, and they came in and showed us the incentives that were going to be in market. They're putting a lot of support behind the ATS, which is where we're going to have to get our volume from in 2018.

The XT5 is No. 2 in its segment and the No. 3 overall luxury-selling nameplate, so I'm not really sure how much juice is left in that orange. And Escalade is a high price point, so you're not going to get a whole lot of additional volume out of Escalade, so the natural spot is ATS. That's what their plan shows.

And then the 2017 selldown, they were very transparent and sent out what the selldown looks like for 2017 and when final pay is going to happen.

So, the lines of communication are opening up too, which is a huge piece of everything. Communication is usually when things get made and get broken.

What are expectations for the XT4?

They're expecting a good presale activity around the vehicle. And I think the expectations are we will have it in October. Their goal, I think, is to probably have it be 25-plus percent for the quarter. There's high expectations for it.

Following the XT4, what do you see being the most important product for Cadillac?

Anything that involves SUV [or crossover] has to be exciting because that is where the big lift is coming from, from a sales perspective. I think the next XT, whatever [they name it], would be what I'm most excited about.

Cadillac has been late to the game when it comes to getting crossovers into the market. Are they too late at this point?

You bring up a great question, and it's a question that we've all questioned: Have we missed the SUV bandwagon and now we're overcorrecting to SUV and stepping out of cars, and are cars going to be the one that come back? … It's definitely a concern that I've had … but I think the big differentiator between now and in the past is the miles per gallon with these SUVs is so much different than what it was the last time we saw the huge market correction on SUVs that I think, maybe, SUVs are here to stay. ... So, I think the fuel economy piece is a differentiator today.

Does Cadillac need to do more marketing or change its marketing? There have been concerns about the brand being "too New York."

It is too New York. It is not striking a chord with the public and the dealers aren't supportive of it. I have seen what's coming and I can tell you that Johan has done a phenomenal job.

Even without a CMO, Johan stepping in to take that role, he has made vast changes and they are super positive. In fact, they showed some of the creative in a council meeting [in February] … and it's the first time in three years that it got applause.

What are your expectations for leasing in 2018?

We have an internal benchmark as council to be leasing around 50 to 52 percent and Cadillac right now is in the low-40s so they're not at where we need them to be.

We anticipate some increase in leasing support but it's tough to have an increase in leasing support when your cars are a year older and your products aren't in the right segments. The leasing becomes extremely expensive.

What are your priorities heading into your final year as chairman?

There's a lot of value to be added by getting dealers' attitudes around the Cadillac brand picked up. I think there's a couple key priorities to do that: One, you can have an ad campaign they believe in and want to support and, two, you've got to show a positive movement in dealer profitability.

With those two things, it will begin to set Cadillac in a very fast trajectory up. For the past few years, we've been kind of waddling in a stagnant spot. My plan, and what we're working on as a council, is to ensure the advertising gets where it needs to and to get dealer profitability trending in a positive direction.