Cadillac’s Plan To Beat The Germans

The two men charged with defending General Motors Cadillac division against German luxury automakers ought to know something about that topic: one is from BMW, the other is from Audi.

Uwe Ellinghaus, Cadillac’s chief marketing officer since January, and Johan de Nysschen, who joined last month as president, saw the depth of their challenge yesterday when Cadillac reported an 18% plunge in August deliveries. Sales of the redesigned CTS sedan, whose angular styling first helped breathe new life into the brand in 2002, plummeted 35% after a 29% decline in July.

GM is trying to expand its range of high-margin Cadillac cars to depend less on large trucks and compete better against Audi, BMW and Mercedes-Benz. Cadillac may have been “too ambitious” in raising prices on the redesigned CTS, Ellinghaus said in a recent interview. To remedy that, he said the division is considering adding features such as heated seats to lower- level versions of the car to entice buyers next year and making “significant changes” to the brand’s marketing in the first quarter.

“There is a tremendous growth in the luxury segment of the world car market and we are currently not capitalizing on this growth to the same degree that we hoped for,” Ellinghaus said last month at a resort near Carmel, California. “The price is definitely an argument” when trying to break through to target buyers who aren’t yet considering Cadillacs.

German Premiums

Cadillac also is preparing for next year four new models, including a redesigned SRX sport utility vehicle and a top-range car. There will be a renewed effort to get independent dealers to remodel for a new brand image and more emphasis on partnerships with hotels and airlines, he said.

The CTS sedan starts at $45,100 (R484 439), according to GM’s website, while the 2013 model started at $39,095 (R419 936) in May 2013. When the car’s pricing was first announced in 2001, it was priced at $29,990 (R322 136 at the current rate) with features taking the cost to about $35,500 (R375 950). The recent price jump has hurt sales, Michelle Krebs, senior analyst with Autotrader.com, said yesterday in an interview.

“While it may have been a terrific car, it may not have been perceived as having earned its stripes for that kind of pricing against the Germans,” Krebs said. “Cadillac has just not earned its way to charge the kind of premium that the Germans can get.”

New Team

That’s where Cadillac’s new executives come in.

Ellinghaus, the former marketing chief for Bayerische Motoren Werke AG, was hired to help bolster Cadillac’s image worldwide. He was joined last month by De Nysschen, who previously led Nissan Motor Co.’s Infiniti and Volkswagen AG’s Audi operations in the US

When introduced in 2002, the CTS attracted new buyers and gave currency to the notion that GM could save Cadillac after it had fallen from the best-selling US luxury brand in the late 1990s. Once the epitome of luxury, Cadillac last year sold only about half as many vehicles as Daimler AG’s Mercedes in the US

In 2012, Cadillac introduced two new models straddling the CTS in size — the smaller ATS and the XTS full-size sedan — as its first new offerings since 2009’s SRX sport-utility vehicle and 2010’s coupe version of the CTS. The ATS in particular helped drive a 48% gain for Cadillac’s cars in the US last year.

Luxury Sales

That surge ended this year. Cadillac’s 4.7% decline this year through August, to 114,008 vehicles, compares with gains of 2.8% for GM and 5.1% for the industry. To bolster sales, Cadillac is heaping an average of $7,701 (R82 719) in incentive spending on its vehicles to entice buyers, the most in the industry, researcher Autodata Corp. reported yesterday.

Among luxury-automakers, German manufacturers have kept the lead for the year, even as Lexus, the premium brand of Japan’s Toyota Motor Corp., surged in July and August. BMW sales rose 12% through August, leading Mercedes by about 5,100 to be the top-selling luxury brand in the US so far this year. For the month, their sales rose 11% and 9.4%, respectively. The figures don’t include Stuttgart, Germany-based Daimler’s cargo vans and Smart cars and Munich-based BMW’s Minis, which aren’t luxury vehicles.

Audi’s August sales rose 22% to 17,101, led by its new A3 and the A4. The German brand’s sales have risen 15% so far this year.

CTS Slump

Toyota’s Lexus took the luxury segment’s sales crown for a second straight month, with a 10% gain to 32,809 for August. Lexus sales have risen 16% so far this year to 198,831.

CTS sales declined 6.2% this year through August, even with a redesign that entered full production in October.

“We were maybe a little too ambitious — after the great success last year — for some form of continuation that so far we don’t see for the CTS,” Ellinghaus said. While the price increases have been “absolutely justified,” a returning CTS customer may now be staring at a sticker price that’s $7,500 (R80 560) more than a similarly equipped older model. This “amount of money is definitely something where people think twice,” he said.

The old CTS was sized between the BMW 3 Series and 5 Series sedans. The ATS better positioned Cadillac to compete with the 3-Series compact car while redesign of the CTS made the sedan slightly bigger to compare better against the BMW 5 Series and Mercedes E-Class.

Different Vehicles

“It’s very difficult to compare CTS on volume solely,” Kevin P. Tynan, a senior analyst with Bloomberg Intelligence, said. “Not only is it a completely different vehicle, it’s competing in a different segment now.”

The higher prices aren’t all bad for the company, as it’s translated into improved average transaction prices. The average price paid for a CTS in July rose 26% to $53,148 (R570 886) compared to the same month a year earlier, according to Edmunds.com, a website that tracks sale and incentive spending. Luxury brands, in general, rose 4% in that same period to $48,972 (R526 030) while GM as a company gained 6% to $54,908 (R589 791).

“In this regard, I’m a happy man,” Ellinghaus said of Cadillac’s pricing gains. While no decisions have been made yet on what additional options will be added to the CTS to broaden its appeal, Ellinghaus said the company is considering letting customers order options such as heated seats individually instead of only as part of a premium package.

Adding Options

“These are things that we can do relatively quickly,” Ellinghaus said. GM will still be able to “make decent profit on the car” without having to do what luxury brands are loath to do — lower the suggested retail price.

Adding content appeals to customers while being a net positive for GM, Tynan, the analyst, said. “I’d rather add the content and hold the price than to say we’re cheaper than the 5’s and E’s,” he said. To the customer, “you look like you’re getting more for less.”

While Ellinghaus wouldn’t give specifics about his plans for Cadillac’s marketing next year, he signaled that the brand will move away from messaging that tries to compare itself with its German foes as it did with the ATS introduction in 2012.

“We definitely cannot build a brand on being as good as,” Ellinghaus said. “We are not German — and that’s a good thing. We are American. We need to build this brand on what differentiates Cadillac from our German competitors.”

-Bloomberg