GM's CDX Delivery System: It's Enough to Make You Want To VOMS it
What is your opinion of the GM custom express delivery system (CXD)?
GM really wanted to make dealers reduce their inventory and instead have vehicles at a storage yard. As dealers needed, they would be able to pull those vehicles from the storage yard inventory. Initially, they said, "We don't want you to tell us how many cars you need, we will bring the cars and put them in a central storage location." As you sell cars, you can pull them. Theoretically, it's a great idea, but it has two basic drawbacks. One is, if you only keep 10 or 15 cars in stock, people think you are going out of business, it's like an empty shelf in a supermarket. I'm competing with a Lexus or a Lincoln dealer, who has 100 cars on their lot and I have fifteen. Number two, typically a person wants a car right away, it is an impulse buy. They don't want to wait for 24 hours or 48 hours, or a week or two weeks to get their car.
That consumer is not interested in why one delivery system might be more efficient than another.
Right, he doesn't care. He wants the car and he wants it now. Mainly because of that reason, I believe this whole system is flawed. GM thinks customers will wait for cars, but with the competition the way it is and with all the new models coming out from the different manufacturers, you are really not competing against other Cadillac dealers, you're competing against Lexus, Mercedes or Lincoln.
At some point, somebody at GM said, "This sounds like a good idea, let's do it." What do you think they were thinking at the time?
What they were thinking is that, if they put a pull system in, they could be more responsive to the market, to a customer who wanted a particular type of car. Say I stock five Devilles, three White Diamonds and two Shale Escalades and it was a push system. If a customer came in and ordered a car, there would be a wait for another 90 days for it to come. In the old days, you would dealer trade and see if someone had it or you would tell the customer, "I'll order it for you." So he took one off your lot or he waited. What GM says now is if a customer comes in and we don't have the particular car he wants, we will charge you more because your cost is going to go down, so we are going to charge a little more for this service and we will deliver this car to you within three weeks.
So the customers pay more to get it three weeks later because it's not in stock?
Right, so GM said they will make it such that if you give us a custom order, we will build the car right away, in three weeks. Instead of having this twelve-week wait, which we normally have, we will reduce it to three weeks. This was the basic which they come to us and said, let's try it for three weeks.
Who was the person at GM who authorized this, that made this happen?
This was somewhere along the lines, some middle managers in GM sold to Zarella this whole idea that one of GM's biggest problems is in-transit time, the amount of time that is taken for us to get the car from production to the dealer and then to the customer is costing GM a lot of money to a pull system, let go more market response, let's just build the cars people want. With a central warehouse, if a customer comes in and they want a green Deville, GM will build a green Deville to replace the one in the warehouse that the customer just bought. They say it will be a market-driven process. They said they would change the production to become market-responsive.
So instead of having dealers tell them which cars they should make, GM said they would have consumers tell them, indirectly, because consumers will buy and we will make replacements for what the consumers bought.
Right, so if everybody is buying White Diamond Devilles, GM will start building more White Diamonds. Why should they build the different colors? In the old system, the dealer can only guess what colors people really want several weeks down the road. This way, the guessing is gone. GM has only a three-week cycle instead of a twelve-week cycle and they will be more responsive. If White Diamonds are selling, let's build more White Diamonds versus black Devilles. Theoretically, it's a great system. But it means you have to have extremely efficient and flexible production.
And your contention is that they don't have it yet?
Let me tell you, in reality, what happens. GM called a meeting of Cadillac dealership sales managers and they said tell us what configurations we should stock in the central warehouse. They are calling the warehouses retail distribution centers, RDCs. To fill each warehouse, they are going to have to stock five to six thousand cars. How does GM figure out what five to six thousand cars to build? Initially, a committee simply guessed what the six thousand cars should be. So now it's not market-driven anymore, which was the whole purpose in the first place. Again, it is guessing what the market could be, plus it costs more and takes longerwhy does Cadillac not use VIN numbers for sold cars to determine what is selling. Now what happens, they said, okay dealers, start pulling these cars. So when a customer walks into my showroom and he wants a Bordeaux red Cadillac and there isn't one in the warehouse. In the past, I could custom order one and I could say, "You will get it in 16 days, Mr. Customer." Now what they do is they shut down custom orders, they won't allow any custom orders and if I want to do a custom order GM will allocate me if they can build a custom order in that week. So as a dealer, I have to wait till Monday to see if I can even get a custom order from the factory, so there is no flexibility. They have constrained us instead of freeing us.
Meanwhile, that customer goes to look at a Lexus or Mercedes.
I've lost a lot of deals to Mercedes and Lexus in the past three to six months because the Deville could not be built to the customer specification in the color or option they wanted.
What has this done to the GM market?
The GM market share has declined. Cadillac is no longer the premium brand, the number one selling luxury brand in the market. We have 1,535 Cadillac dealers and we got outsold by 175 Lexus dealers last year, which is pathetic. The market share keeps deteriorating and it is related to two things, CXD and product. I am not going to tell you that the product is not responsible for the decline, but I'm telling you also that we have lost a lot of deals because we cannot stock the amount of cars we would like to stock.
You already had the problem with the product. Now you have this, so to get what they want, some customers have to wait longer and pay more for a product that is not as good. That is a losing proposition.
Not only that, before you could call up and pull a car and have it within 24 to 48 hours. Now GM says we cannot pull a car, they tell dealers they will let us know on Monday if we get a pull or not, so they will allocate me a car on Monday and I have a week to pull it. Say a guy wants an Escalade from me, a white Escalade. I look on Monday and they don't give me a pull because on my lot I only have four, two black and two silver mist. I now have to call my district manager do, and say, "What do you want me to dealer trade again?" So we are back to dealer trading and I can't pull from the central warehouse and GM is charging me more for it. They are charging us $285.00 more on the car because they think it is easy for us to pull from the yard, but they have restricted us from pulling from the yard. I have no idea what I am going to get next week. I have no visibility.
How does this affect your advertising and marketing?
Mike, as you know, GM feels they know better than the dealers how to advertise in a local market. That's a whole new discussion. Essentially what I do is look at our stock and advertise what our stock is. So if I can not give DHS or DTS, I am not going to advertise that stuff. If you look at Cadillac advertising, they are advertising night vision and navigation systems. We can't get them. Night vision is only going to be 28% of the build, so out of four Cadillacs that are built, one is going to have it. A customer comes in and he wants a navigation system. You are constrained, you are only going to get so many units. It's a total cluster ____.
It makes no sense why somebody has to wait 16 days to get the burgundy Cadillac they want, when they can go to a Lexus dealer and pick one off the lot.
Typically a dealer carries 60 to 90 days inventory, so if you are selling 20 cars, you carry approximately 60 cars. Now, a dealer who sells 20 cars carries about 35 or 40. Hopefully, when a customer walks in, you have a good mix so you can sell them a car. But if you don't have that mix or the color which the customer desires, he is not going to buy from you. Because every Cadillac dealer has limited-to-moderate inventory, so you can't even dealer trade because the models other dealers have are limited. GM screwed themselves and have literally caused the market to shrink for Cadillacs.
What do you feel they should have done to make CXD work?
They have to deliver on what they promised. They should have multiple units sitting there at the warehouse and we could pull them and get them within 24 hours.
So you are saying, if it worked the way it was described initially, you think it would work?
I think it would work if every dealer could get a unit from the warehouse in 24 hours. The 24-hour delivery is gone. Second, if there is a custom customer who comes in, I want GM to promise that customer that he will get the car in 15 days, which was the whole concept of CXD. If a customer comes in, I can say, "Let me put you in a rental vehicle for 15 days until your car comes in." I can't do that anymore, I don't have an option. When a customer comes in now, I can't even tell him if I can order that car for him until Monday because I don't know if I will be allocated that car. There is no visibility at all. I can't make promises to the customer because most of the promises I can't keep. Essentially, I have to be very careful as to what I promise the customer, while I have reduced my inventory and essentially my sales because I am selling from an empty shelf.
At what point do you think GM will recognize the problems with this system and fix it or do away with it? How bad do you think its going to have to get before they change direction?
The market share for Cadillacs is declining. The same thing happened when they put CXD in Jimmys and Blazers some time ago. It was such a disaster that they cancelled it, Jimmy and Blazer sales went down. The sales declined when we went to a CXD system. When we went back to the old system, sales increased.
So why are they keeping it with Cadillac?
Because somebody has sold a bill of goods to Mr. Zarella. The whole problem boils down to production. They do not have flexible production. It's not like selling soap. Also, most dealers are hands-off, so most dealerships are run by managers. Now, CXD has given the managers a tremendous excuse, "My sales are down, I can't get the product." The feedback Cadillac gets is from its sales managers, so you never get a reasonable response from them, because it has kind of made their job easier. They don't have to dealer trade, they don't have to work real hard to make the deal. If it is not on the shelf they pass on the sale. If you talk to a dealer who is well-informed and knows his business, he will tell you CXD doesn't work. They are ripping us off, by charging an additional $285.00 a unit, and it is worse than the system we had before.
You probably would pay $285.00 a unit to get rid of it.
Get rid of it! I've written and said, "Charge me the $285.00, but put me on VOMS, I think it is better than CXD."
Do you think maybe they put you on CXD just so you would be satisfied with VOMS? (laughter)
(Laughter) Well, let me tell you, VOMS, in my opinion, is not a bad system. Inflexible production is the problem.
