Cadillac at uncomfortable crossroad
Detroit - General Motors CEO Mary Barra's strategy of rebuilding the Cadillac brand has run into twin roadblocks.
The luxury brand can't persuade enough American sedan buyers to switch from foreign rivals with BMW and Mercedes badges, and it can't make enough of its Escalade SUVs to satisfy domestic demand.
Even though chrome-bedecked Escalades retailing for more than $100 000 (R1 157 000) each are rolling every day out of an Arlington, Texas, factory that's been working weekend overtime for months, Cadillac still can't keep more than a few weeks' worth of the big SUVs in stock.
By contrast, its dealers are offering discounts of thousands of dollars on the ATS sedan, intended to compete with the BMW 3 series and Mercedes C-Class, and on the CTS sedan, meant to rival the 5 Series and E-Class.
At the Brotherton Cadillac dealership in Washington, owner Brad Brotherton is offering 2014 ATS sedans at up to $12 000 (R139 000) off a sticker price that starts at about $33 215 (R384 000). In St. Peters, Missouri, Bommarito Cadillac was cutting as much as $17 500 (R202 000) off the price of a 2014 CTS sedan, which starts at about $45 345 (R525 000).
Cadillac made a commitment to relieve dealer inventories by incentivizing the leftover 2014 sedans, Brad Brotherton told Reuters. “Dealers had been asking for that for a long time.”
CAN CADILLAC COMPETE?
The fire sale marks a setback for Cadillac's strategy to challenge BMW and Mercedes-Benz head-on in the luxury sedan market. But while an American Cadillac owner will happily consider a BMW or a Mercedes, drivers of those famous German cars just won't put a Cadillac on their shopping list.
“The problem is, Cadillac is not BMW,” said Larry Dominique, president of ALG in Santa Monica, California, which sets and tracks vehicle leasing values. “The ATS is the product that Cadillac could have used to build brand equity, but it was overpriced and overproduced.”
Cadillac has wrestled for more than a year to shrink inventories of unsold ATS and CTS models. In mid-December it shuttered the Lansing, Michigan, plant that builds the ATS and CTS for six weeks. The factory reopened January 26 on a single shift with a greatly reduced production schedule.
Even with the production cuts, Cadillac and its dealers had about four months' worth of unsold CTS sedans and six months' worth of unsold ATS sedans on hand at the end of January, a Reuters analysis showed.
The failure of the ATS and CTS to hit their targets is costing GM. To kindle demand, Cadillac has offered subsidised leases.
WHAT BUYERS REALLY WANT
Meanwhile, the Escalade is hauling in the cash, as year-on-year sales in January rose 149 percent, according to Cadillac spokesman David Caldwell. GM's truck factory outside Dallas, which builds the Escalade and long-wheelbase Escalade ESV and their Chevrolet and GMC siblings, has been running steadily on three shifts and working weekend overtime for months to try to keep up with unrelenting demand.
“If we could run that plant eight or nine days a week, we probably would,” said a GM insider familiar with the production schedule.
Cadillac marketing boss Uwe Ellinghaus, a former BMW executive, calls the Escalade “almost a brand in itself,” but adds that the big SUV “does not set the direction” for Cadillac's long-range strategy.
As it is, Cadillac is likely to get only “a few more” Escalades this year, according to Caldwell, who said, “A little bit of scarcity isn't a bad thing.”