Caddy expects short-term flat sales
The new president of General Motors Co.’s Cadillac luxury brand, which has its best lineup in years but is struggling to move cars off dealer lots, expects “at best a flat-lining” of U.S. sales in the short-term as part of its ultimate growth strategy.
Johan de Nysschen, who joined Cadillac in August from Infiniti Motor Co. Ltd., said that as Cadillac tries to increase the average selling price of its cars and backs off using big rebates and other incentives to move them off dealer lots, sales in the U.S. for now likely will remain flat.
GM wants to build Cadillac into a global luxury brand by expanding its lineup into unfamiliar segments and new locations. de Nysschen expects the transformation of the brand to take 10 to 15 years, with milestones set up along the way as he and his team try to hit gains in brand image, owner satisfaction and customer loyalty.
“People used to say ‘This is the Cadillac of …,’ because it represented something really so superior,” he said in an interview. “We must get back to that point where people have such a positive and aspirational association with the brand Cadillac that it goes beyond automobiles.”
Cadillac’s U.S. sales rose 22 percent in 2013 but are down 4.7 percent this year through August; sales of its new ATS and XTS sedans have fallen more than 20 percent.
Today, GM sells Cadillacs in about 40 countries, with the U.S. serving as the profit base. Growth in China will help Cadillac grow globally even as U.S. sales flatten, de Nysschen said.
Cadillac is building higher-quality, award-winning vehicles but is asking higher prices that some traditional customers “are not accustomed to,” he said.
While some have scoffed at the higher sticker prices, de Nysschen said Cadillac can’t afford to charge less than do Mercedes-Benz or BMW. He noted it will take time for people to recognize why they should pay more.
“I will never make Cadillac attractive to them (people shopping German brands) if the only reason that you buy Cadillac is because it’s got a good value,” de Nysschen said. “That’s part of the prestige of owning a premium brand, right? That is the reason why we have to accept for now existing product portfolio, we have to accept a flat-lining of volume because I’ve got to work on improving the quality of business.”
de Nysschen’s short-term message is one that Cadillac dealers may not like as they gather later this week in Las Vegas for their annual dealer meeting.
He said Cadillac will help dealers by adding more new products in market segments where it currently does not have entries. He said GM is investing an “unprecedented” amount into expanding the lineup.
The Cadillac chief said it’s important not to alienate the traditional customer base, but he needs to make the brand more relevant to those who are buying imports and to Millennials who are expected to account for more than half of luxury car purchases by the end of the decade.
“The role of the Baby Boomers has waned and we have to … evolve our brand,” he said. “Otherwise, I’m afraid we’ll wane together with the Baby Boomers.”
Uwe Ellinghaus, Cadillac’s global chief marketing officer, is not satisfied with ATS and CTS sales in the U.S. But he is happy with Cadillac’s average transaction price of $49,000. That’s up $5,000 from a year ago.
“From a brand-building point of view, this is fantastic. Yes, I also wish these prices came with higher volumes,” he said. “But I also have to build this brand carefully. And honestly I never expected another 22 percent growth in the U.S. for this year.”
Alternative to the Germans
Cadillac’s tone has changed from just a few years ago when it boasted that the ATS was its BMW 3-Series fighter and it was taking on the Germans. Now, Ellinghaus said Cadillac won’t “fight against the Germans” but will “offer an alternative to the Germans.”
Instead of raising incentives or cutting prices to deal with high inventories, Ellinghaus said Cadillac would cut production. GM’s Lansing Grand River Plant that builds the ATS and CTS recently was shut down three weeks to trim supply.
Some dealers and analysts say the revolving door of executives — and former Cadillac chief Bob Ferguson being heavily pulled into GM’s ignition switch recall crisis — are factors in Cadillac’s sales slump. Some dealers also criticize the steeper prices Cadillac has placed on cars such as its redesigned CTS; a turbocharged, 4-cylinder CTS can sticker for more than $72,000.
“Cadillac has right-sized its sedan lineup, including the price,” Auto Pacific analyst Dave Sullivan said. “That is alienating buyers who are coming back in the showroom and the CTS price is up by $10,000.”
Former Metro Detroit Cadillac dealer Kevin Rinke, who has purchased BMWs for the last decade, considered leasing a CTS because he was impressed by its looks and performance.
But the CTS he wanted had a $900 monthly lease — nearly equal to a BMW 550 M Sport’s $950 lease — in part because of Cadillac’s lower residual value.
“If the Cadillac had been priced at $600 — or even $700 a month — I would have bought it,” Rinke said. “Cadillac is making cars again that have quality and style. But they haven’t yet earned the right to charge the same as a BMW. That’s what is turning people off.”
IHS Automotive analyst Stephanie Brinley said the ATS is getting lost in the shuffle with so much advertising from competitors, while pricing appears to be an issue with sluggish CTS sales. Cheaper introductory models like the Audi A3 and Mercedes CLA also have undercut ATS sales. “Cadillac seems to have a bit of an awareness problem,” she said.
IHS predicts Cadillac sales will hit about 175,000 in the U.S. this year, down from 182,000 last year. The forecasting firm expects sales pick up for Cadillac in 2015, with the luxury brand selling about 183,000 vehicles in the U.S.
However, without a small crossover — Ellinghaus hinted that more crossovers are coming — “they are losing incremental sales,” Brinley said.