Pivot

Neil Roland of Automotive News wrote the piece, describing how GM wants to mimic the dealership footprint of which they consider Cadillac’s primary competitors, Lexus, BMW and Mercedes.  Cadillac as of the moment has 1,422 dealers, while Lexus has 226, BMW 338, and Mercedes 347.  The Detroiters’ plans are to reduce Cadillac by about 922 dealers to about 500 points, and to copy their import competitors’ Left and Right Coast geographic bias.

The arbitration process may well jeopardize GM’s strategy, adding back dealers in fly over country.  Which may not a bad thing at all.  While dealers for GM’s remaining brands Chevy, Buick and GMC were evaluated on objective criteria such as a “retail sales index” and a “dealer performance score”, for Cadillac dealers were evaluated, according to dealers who spoke with GM, on opaque “networking viability and throughput” issues.  As Cadillac dealers no doubt support the local Chamber of Commerce, the Rotary and the Lions’ Club, and the profitable ones have adequate “throughput”, one gets the idea that the terms are code for “we just don’t like you anymore”.

In short, GM blindly tried to emulate the pattern of their competitors, but didn’t pause to think that perhaps their own footprint provided a competitive advantage, and that perhaps BMW, Mercedes and Lexus envied many of Cadillac’s dealer points.  The story described on how one small town Cadillac dealer was cancelled in Indiana, PA, along with another nearby in rural Pennsylvania.  Which meant that for many formerly loyal Cadillac buyers, the nearest dealer would be 45 minutes or longer away.  Arguably, both dealers might not be viable, but one certainly might have been.  After all, the whole idea is not to slavishly emulate your competitive set, but rather to beat them and to sell cars and trucks to loyal repeat customers.

Taking Cadillac’s dealer count down from 1400 to 500 and concentrating on areas where the competition is already strong puts Cadillac at the risk of being the fourth competitor in a three horse race.  Taking a more competitive mindset might suggest a healthy pruning of sales points in order to ensure dealer profitability.  That is, not have dealers so close as to compete with each other on price rather than compete with other luxury brands on features, benefits, technology, style and luxury appointments.  Perhaps the “right sized” Cadillac dealer body is 1,000 to 1,200 stores. GM and government managers seem to have been so focused on benchmark metrics as to forget that profitability lies in selling as many Cadillacs as possible at a profit.

Likely, the idea was that GM, Cadillac and their Washington overseers felt that buyers from smaller towns just didn’t fit into the desirability profile they had in their heads.  As a partial owners I’d like to remind the folks in the glass walls of the Renaissance Center that they need not be all that snooty in recovering from bankruptcy and prosperous people are abundant in the large, midsized and small towns between the Sierra Nevadas and the Appalachians.

One sort of person that GM does find desirable is Toyota and Lexus owner who might be having second thoughts about buying another given the troubles Toyota’s brands are having with sudden unintended acceleration.  Over the last week, GM made a big splash in announcing a three pronged incentive attack on Toyota’s previously loyal buyers.  Toyota leaseholders could get three months payments forgiven, up to $1,000.  Toyota trade-in customers choosing to finance would be eligible for up to 60 months at 0% interest.  Or there might be a straight $1000 rebate applied.  Ford and (as of tonight) Hyundai have stepped in with $1000 conquest rebates on Toyota (and Honda for Ford) trades.

While GM’s and others’ actions might be seen aggressive, Ed Whitacre might be well apprised to take a look at these sorts of programs from the point of view of those buyers who have been loyal GM customers all their lives.  Like wives and girl friends (and the occasional male) whose husband, boyfriend or girlfriend begins to get interested in someone else, there’s that whole feeling of, “Hey! What about me?  I’m the one who’s stuck by you all these years.   And they haven’t all been pleasant, let me remind you!”

Conquest incentives and loyalty programs are tricky, and can backfire if not handled properly.  The conquest rebate can alienate the loyal customer, and while loyalty rebates are perhaps not as controversial, there is that reflective impulse of “I hear that guy’s getting an extra kicker, I’d like that same deal myself.”

It’s one thing to offer these sorts of programs, there are pluses and minuses related to timing amounts and how such sales programs ultimately affect resale, image, residuals and return loyalty.  But if you’ve decided to go down that road, it might be best to simply offer the same program for everyone, but target your audiences specifically and differently.  Toyota owners might get an e-mail or brochure in the mail offering a “Toyota Trade-In Bonus”, while current customers might receive “Loyalty Cash”.  Whatever you do, perhaps a press release to the world is the last thing you’d want to do.  Pointing out that you’re favoring one class of potential customer can only cause consternation on the part of the rest.

I don’t know what the key success factors are in telecommunications, or what the core competencies are that lead to competitive advantage.  I suppose there are many, as there are in any industry.  In autos, passion for product has to rank high.  Respect for your key stakeholders, that is, your dealers, suppliers and employees is another set of key attributes.  Primary has got to be respect and appreciation for your customer.  The hub of the quality wheel is always customer satisfaction.  Somehow, putting extra cash on the hood for people who aren’t even your current customers seems a little untoward and as liable to cause the loss of as many customers as you might gain.

And GM’s only hope lies in not only recruiting new customers, but in retaining as many loyal ones as they can.  That ol’ relationship guru General George S. Patton said it best, “There's a great deal of talk about loyalty from the bottom to the top. Loyalty from the top down is even more necessary and is much less prevalent.”  It doesn’t engender much loyalty for GM to close dealerships where their competitors aren’t, nor make a point of trying to attract one kind of customer, while ignoring your own.

I don’t know how Ed Whitacre grew SBC to the point of taking over AT&T, but he sure must have attracted enough paying customers to make it happen.  It isn’t often when Congress passes a law that is smarter than the actions of private industry mavens and public policy wonks.  Ed should appreciate how lucky he is.