• by Thom Forbes  @tforbes, August 9, 2016

Virtual reality may be the future of brand and social marketing but, for now, Cadillac dealers in rural areas are up in arms about, among other things, a plan that would eliminate their inventory, leaving them with virtual showrooms to close the deal with customers looking to drive away in a spanking new CT6 or ATS-V.

“Seven state dealer association heads say Project Pinnacle would create several tiers of ‘effective pricing’ as Cadillac funnels a disproportionate amount of money to larger, urban stores that are better able to make pricey investments in services such as complimentary roadside assistance.” They say so in a “sharply worded letter” to Cadillac president Johan de Nysschen, Automotive News’ Mike Colias wrote yesterday after obtaining a copy of it.  

“That no-inventory idea also would violate Cadillac's pact with its dealers, the letter from the state associations asserts, citing language from the agreement that says customers ‘expect the Dealer to have a reasonable quantity and variety of current model motor vehicles in inventory,'” Colias reports.

The Wall Street Journal reported about the VR headset idea for low-volume dealers in June. “Those who do adopt the virtual model will have tester cars on site, which can be loaned to people getting their car serviced or used in test drives,” Christina Rogers, John D. Stoll and Gautham Nagesh reported at the time.

The letter to de Nysschen, dated Aug. 3, was signed by heads of the New Jersey, Connecticut, South Carolina, North Carolina, New Hampshire, Kansas, Wisconsin and metro Cleveland dealership associations. 

“The wording hints at an increasingly adversarial relationship between the company and its franchisees,” observes Justin King on Leftlane in a post that drew nearly 30 comments in 18 hours. They range from “Sure, ask the dealers to address falling numbers by investing even more into a strategy that clearly isn't working” to “a pyramid is a pyramid, welcome to the new GM,” to “Hey Cadillac dealers … how about some cheese to go with your whine.

“de Nysschen was accused of creating a program that [the dealers]  consider ‘is the most serious attack on their survival they have seen,’” Gautham Nagesh reports in the Wall Street Journal. “de Nysschen has been in the process of rolling out ‘Project Pinnacle,’ which aims to classify dealers into five groups and limit the inventory or showroom space that the smallest dealers need.”

Unveiled in April, Project Pinnacle is “a program that will overhaul everything from how dealerships interact with customers and how their salespeople dress, to how they present their showrooms and service departments and how they get paid for new-car sales,” Automotive News’ Colias wrote in a June piece after getting his hands on a draft of the new standards. 

Automotive Trade Association Executives, meanwhile, say the tiers may be in violation of state franchise laws. “Florida dealer attorney Richard Sox said in an email that he believes Project Pinnacle violates franchise law ‘because a dealer in a lower tier cannot practically meet the facility requirements … to obtain the higher per-car incentive,’” Colias reports.

Cadillac had no immediate comment except that de Nysschen is reviewing the letters — presumably with a battery of lawyers — and will respond.

In other news, Cadillac sales worldwide were up 20.9% year-over-year in July, according to a release posted Friday.

“The sharp increase was driven by the brand’s newest models, the CT6 prestige sedan and XT5 luxury crossover, as well as the ATS product line supported by continued strong growth in China,” where sales soared 89.7% in the month. Overall, sales are up 23.9% in 2016 in the world’s largest market.

Sales increased a much more modest 1.3 % to 14,341 units in the U.S. in July and they are down 7.9% for the year. On the positive side, the brand has the highest Average Transaction Prices (ATPs) in the full-line luxury segment — more than $53,000 per unit, according to J.D. Power Information Network.

“Despite GM’s ongoing focus on profitable retail sales as opposed to the less profitable fleet sales, Cadillac fleet sales were up 4.3%, or 35 units, year-over-year to 848 units, representing 5.9% of total Cadillac sales for the month,” in the U.S. according to a post in the GM Authority blog. Retail sales were up 1.1%.