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The revival of General Motors' (NYSE: GM ) luxury Cadillac brand was one of the big stories in the auto business last year. The old brand's U.S. sales rose 21.9% last year thanks to strong new models that drew big praise from critics.

But this year has been a very different story. Through November, Cadillac's U.S. sales are down 5.9% -- even as other luxury brands have set new sales records.

What's the deal? Cadillac's latest models, the ATS and CTS sedans, are still great products. But they're priced a lot higher than Cadillac's longtime customers are used to seeing, and the data suggests those high prices are hurting sales.

Better Cadillacs come with higher prices
How big are the increases? The ATS was a new model when it was introduced, but the CTS is in its third generation. Base versions of the CTS sedan, which was all-new for the 2014 model year, are priced about $6,000 higher than the 2013 models they replaced. In premium trim lines, the difference is over $15,000.

Is the new CTS better than the old one? You bet: It won Motor Trend's Car of the Year award last year, and it has been cleaning up in comparison tests against the German luxury stalwarts.

And to be fair, the new CTS is priced right in line with the cars that GM sees as its key competitors: the Mercedes-Benz E Class, the BMW 5-Series, and Audi's A6.

But Cadillac's customers aren't used to paying those kinds of prices, and some are shopping elsewhere. Meanwhile, BMW and Mercedes buyers aren't (yet) flocking to Cadillac's showrooms to make up the difference.

In other words, Cadillac is losing its old customers -- but isn't yet winning enough new ones to make up the difference. So, why isn't Cadillac trimming its prices?

Not long ago, a price cut would have been GM's response. But these days, Cadillac is under new management -- and its new president, longtime Audi executive Johan de Nysschen, ordered something different: a big cut in production at the factory that makes the two sedans.

Why GM moved to cut Cadillac production...
GM drew some negative commentary last month when news broke of its decision to cut production at its Lansing Grand River plant, where the ATS and CTS are made, to one shift from two.

It was jarring to hear GM announce layoffs during an economic expansion, when rivals like Ford have been adding shifts and hinting at capacity constraints, but it was a necessary move -- and part of de Nysschen's grand plan to turn Cadillac into a true global luxury brand.

The reason: high inventories of CTS and (especially) ATS sedans at U.S. Cadillac dealers. As of Nov. 1, GM's U.S. dealers had 151 days' worth of ATS's and 113 days' worth of CTS's on hand, according to Automotive News data. That's far above the 60 days' worth generally considered optimal.

Why are high inventories a problem? Because of the strong urge to discount prices in order to clear out stock. "Stack them high and move the metal and sell them fast is not the right [approach] for the premium business," de Nysschen insisted in a presentation to analysts at a Barclays event last month.

...instead of cutting prices
So, why are price cuts bad for Cadillac? While de Nysschen did approve some incentives to clear out those high inventories of 2014 models, he doesn't want to reduce prices long-term.

De Nyscchen argues that discounted prices don't just undermine profits on the initial sale of a new car. They also undermine residual values -- the expected value of a nice three-year-old used car, for example -- which are used to determine leasing costs. Lower residual values mean less-competitive leasing deals on new models. That's a killer in the luxury market, where leasing can account for half or more of sales.

The solution: Cadillac will make (and sell) fewer cars, at least for now. That will cost the brand in terms of overall sales numbers and profits in the short term, but it should improve average transaction prices, residual values, the image of the brand, and -- in time -- overall profitability.

A long-term plan to keep Cadillac supplies tight
De Nysschen's long-term target is for Cadillac dealers to have just 30 days' worth of supply on hand. That's much lower than most dealers manage now, but he says moving to limit dealers' inventories will reduce incentives (increasing average transaction prices) and reduce the amount of "working capital" dealers have tied up at any given moment. Both will help improve dealers' profit margins.

It sounds simple, and it makes a lot of sense. But the fact that Cadillac is able to take that approach is a sea change for General Motors. For decades, GM was focused on market share as the defining metric of success. De Nysschen has convinced his boss, GM president Dan Ammann, that accepting a near-term decline in U.S. sales for Cadillac is the right long-term move for the brand.

In his presentation at Barclays, de Nysschen recognized the need to convince Wall Street as well. "I ask you to leave me alone for the quarterly result," he told the audience of analysts. "If we work to optimize the quarterly results, we will continue to do precisely the wrong thing for Cadillac. We need to now invest in rebuilding this brand."

Read further: http://www.fool.com/investing/gener...l-motors-stuck-with-high-cadillac-prices.aspx
 

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In his presentation at Barclays, de Nysschen recognized the need to convince Wall Street as well. "I ask you to leave me alone for the quarterly result," he told the audience of analysts. "If we work to optimize the quarterly results, we will continue to do precisely the wrong thing for Cadillac. We need to now invest in rebuilding this brand."

Ya. Keeping prices near sticker vs. doing the standard deep-discount GM SOP is clearly what dN needs to do to up the image of Cardiac.

I don't know how far Caddys have typically been discounted, but I do know that some Chibby and Chrysler products could be had for 2/3 of sticker. And of course those same cars on the one- or two-year-old lots can be had for a song, no dance required. NOT Caddy's goal obviously.

And since MB, Bimmah, and Audi do so much leasing and Caddy wants to, this is a DUH. Gotta do it.

The other thing you gotta do is price the cars appropriately, see ELR for the sad details of an orphan abandoned in downtown Detroit. So fine tuning is critical.

If Caddy Lack can hire others "just as smart" this should prove a simple task!!
 

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Lots of hypothesizing about Cadillac customers balking at the Cadillac price increases and that's bullsh t....

The reality of the marketplace is as a shopper I can lease a comparable BMW for 20 to 25 percent less....so tell me WHY CADILLACS PAST CUSTOMERS ARE NOT COMING BACK TO BUY ANOTHER CADILLAC CTS.. Or ATS?

This segments volume is all about leasing....and when BMW payments are 20 to 25 percent less a month same zero down on both brands...what idiot is going to get the Cadillac?

This story that old caddy buyers are put off on Cadillacs higher than past prices is nonsense....

Cadillac has to lease at 10 percent a month less zero down (except bank fee) and NOT 20 percent more...

All the rest of the article is nonsense...although the base cts looks like crap...the little wheels and tires sentence cheap where as the 2 nd gen has higher profile 18 s that reminded many of Bentley which was cool...

The new cts misses the mark on lower models..wheels tires lights....and the end result is brutally rental car looking..

So crappy lease deals that show competitors cleaning Cadillacs clock... Www.legendleasing.com and cheap looking base and mid range model Cadillacs...

Spells loser
 

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Looks like this story is going to remain interesting.......................

Anyone follow the story of Ron Johnson the CEO (former) at J.C. Penney?

He must have used the word Patience about a million times, after 2 1/2 years and almost bankrupting the company, he was chased-out, still requesting more time and patience.

I'm not say'in, I'm just say'in..........
 
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Lots of hypothesizing about Cadillac customers balking at the Cadillac price increases and that's bullsh t....

The reality of the marketplace is as a shopper I can lease a comparable BMW for 20 to 25 percent less....so tell me WHY CADILLACS PAST CUSTOMERS ARE NOT COMING BACK TO BUY ANOTHER CADILLAC CTS.. Or ATS?

This segments volume is all about leasing....and when BMW payments are 20 to 25 percent less a month same zero down on both brands...what idiot is going to get the Cadillac?

This story that old caddy buyers are put off on Cadillacs higher than past prices is nonsense....

Cadillac has to lease at 10 percent a month less zero down (except bank fee) and NOT 20 percent more...

All the rest of the article is nonsense...although the base cts looks like crap...the little wheels and tires sentence cheap where as the 2 nd gen has higher profile 18 s that reminded many of Bentley which was cool...

The new cts misses the mark on lower models..wheels tires lights....and the end result is brutally rental car looking..

So crappy lease deals that show competitors cleaning Cadillacs clock... Www.legendleasing.com and cheap looking base and mid range model Cadillacs...

Spells loser
I agree, the leasing deals need to get better. I saw another article with some people from GM Financial and they said the same thing. They indicated that things would get better and more aggressive on leases in the coming weeks
 

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The whole "raising residuals" isn't as easy as it sounds.......... The demand for your products needs to increase (or cut the supply) otherwise it just doesn't work............

By GM "playing hardball" it’s actually opening the door for Audi/BMW/M-B to grab existing Cadillac owners, and it certainly discourages current Audi/BMW/M-B from jumping ship.
 
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Looks like this story is going to remain interesting.......................

Anyone follow the story of Ron Johnson the CEO (former) at J.C. Penney?

He must have used the word Patience about a million times, after 2 1/2 years and almost bankrupting the company, he was chased-out, still requesting more time and patience.

I'm not say'in, I'm just say'in..........
I thought JCP WAS bankruptured.

Sears & K-mart are both quiet as funeral homes, on the very very rare occasion when I visit either.

If Caddy leases are higher than the Germans' rates by 25%, then where are these guys going to print the money to cut lease rates?

I discovered long ago that I have no brand loyalty. Most dealers don't make the effort to retain customers, though they're better today than 20 years ago, and makers just make.

Caddy has some big hills to climb. Lucky they have some "as brilliant as I am" folks aboard to right the ship!
 
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For the most part....,this segment is all about lease payment competition...

Cadillac can keep the price as is....it's the lease rate that must be 10 percent less than I can get a BMW from legendleasing.com

Till then all the rhetoric is jibberish (at the very least in the competitive New York tri state area
 

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"De Nysschen's long-term target is for Cadillac dealers to have just 30 days' worth of supply on hand."

This is all well and good, but to do it either you have to have the assembly plants working in lockstep with sales volumes or be willing to absorb a buffer between the mfg plants and dealers. The former would be preferable from a business standpoint.
 

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If only GM had a platform and plant that could be flexible enough to build RWD, AWD, car and SUV from so they could change the model mix to match the market trends and whims.:rolleyes:

GM's motto: Nimis enim stultum verba
 

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I thought JCP WAS bankruptured.

Sears & K-mart are both quiet as funeral homes, on the very very rare occasion when I visit either.

If Caddy leases are higher than the Germans' rates by 25%, then where are these guys going to print the money to cut lease rates?

I discovered long ago that I have no brand loyalty. Most dealers don't make the effort to retain customers, though they're better today than 20 years ago, and makers just make.

Caddy has some big hills to climb. Lucky they have some "as brilliant as I am" folks aboard to right the ship!

No not yet anyway, but it was getting really dicey for a while, it was about this time 2 years ago now.

This tells it pretty good: http://business.time.com/2013/04/09/the-5-big-mistakes-that-led-to-ron-johnsons-ouster-at-jc-penney/ (it’s amazing the number similarities you can find to Cadillac).

JCP < NEW Logo (not JCPenny's so un-cool) didn't have other brands to fund their experiment..............

Basically he was trying to get customers to pay more for their "stuff" they went elsewhere, in droves, sure the items you sold had a bit higher ATP, but the volume was down so much, it didn't matter. (sound familiar?)
 

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"De Nysschen's long-term target is for Cadillac dealers to have just 30 days' worth of supply on hand."

This is all well and good, but to do it either you have to have the assembly plants working in lockstep with sales volumes or be willing to absorb a buffer between the mfg plants and dealers. The former would be preferable from a business standpoint.
And decrease the network at the same time too, right? Seems like a tall order, you want a red one, they've got a black one............. "No Sale"

With fewer dealers and lower inventory it makes dealer-trades much, much harder too……..

I think there is around 940 Cadillac Dealers today, so let’s drop that back to 650 and use a "lower-volume higher-price" models of 150,000 units a year total.

150,000 / 650 = 230 cars per dealer, per year, now divide that by 12 months, 30 Days supply is 19 cars/SUVs on the lot, oh and we are going to have 10 models too, so 2 cars of each model, on average!?

Maybe the math is different in New York :think:
 

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Better Cadillacs come with higher prices
How big are the increases? The ATS was a new model when it was introduced, but the CTS is in its third generation. Base versions of the CTS sedan, which was all-new for the 2014 model year, are priced about $6,000 higher than the 2013 models they replaced. In premium trim lines, the difference is over $15,000.

Is the new CTS better than the old one? You bet: It won Motor Trend's Car of the Year award last year, and it has been cleaning up in comparison tests against the German luxury stalwarts.

And to be fair, the new CTS is priced right in line with the cars that GM sees as its key competitors: the Mercedes-Benz E Class, the BMW 5-Series, and Audi's A6.

But Cadillac's customers aren't used to paying those kinds of prices, and some are shopping elsewhere. Meanwhile, BMW and Mercedes buyers aren't (yet) flocking to Cadillac's showrooms to make up the difference.
This comparison is disingenuous!
The CTS is a "better" car, yes. But it also moves up to a tier previously occupied by the STS, which, not surprisingly, was priced similarly to Gen3 CTS. Why does the media never mention this in any of their write-ups?
This is a self-inflicted product positioning disaster by the product manager of CTS. Some airhead product executive at Cadillac thought because CTS was popular, it should persist in an entirely different price and competition class. That person deserves to be tar and feathered.

The only solution was to rebrand CTS the "New STS." That way, you at least wouldn't be alienating current CTS customers with a pricing structure that they simply cannot swallow. Those buyers bought CTS because it was cheap not because of the name or luxury behind it. It's no surprise they won't spend money to buy the new CTS. CTS is in fact selling about as well as the old STS was.


In other words, Cadillac is losing its old customers -- but isn't yet winning enough new ones to make up the difference. So, why isn't Cadillac trimming its prices?
Depends on how you want to slice that statistic.
Cadillac isn't retaining the value-oriented buyers, while keeping buyers who can either afford the new Cadillacs or love the name no matter what. THOSE are the buyers Cadillac needs to retain. The others aren't worth it.

Why are high inventories a problem? Because of the strong urge to discount prices in order to clear out stock. "Stack them high and move the metal and sell them fast is not the right [approach] for the premium business," de Nysschen insisted in a presentation to analysts at a Barclays event last month.
Love this guy!!!

De Nyscchen argues that discounted prices don't just undermine profits on the initial sale of a new car. They also undermine residual values -- the expected value of a nice three-year-old used car, for example -- which are used to determine leasing costs. Lower residual values mean less-competitive leasing deals on new models. That's a killer in the luxury market, where leasing can account for half or more of sales.

The solution: Cadillac will make (and sell) fewer cars, at least for now. That will cost the brand in terms of overall sales numbers and profits in the short term, but it should improve average transaction prices, residual values, the image of the brand, and -- in time -- overall profitability.
Sounds like the perfect strategy to BUILD Cadillac as a LUXURY brand!!

In his presentation at Barclays, de Nysschen recognized the need to convince Wall Street as well. "I ask you to leave me alone for the quarterly result," he told the audience of analysts. "If we work to optimize the quarterly results, we will continue to do precisely the wrong thing for Cadillac. We need to now invest in rebuilding this brand."
I agree with this guy. He needs to reset Cadillac and analyst expectations moving forward. And if it takes an extra quarter to do it, so be it.
That also gives him time to build buzz around CT6.
 

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I think there is around 940 Cadillac Dealers today, so let’s drop that back to 650 and use a "lower-volume higher-price" models of 150,000 units a year total.

150,000 / 650 = 230 cars per dealer, per year, now divide that by 12 months, 30 Days supply is 19 cars/SUVs on the lot, oh and we are going to have 10 models too, so 2 cars of each model, on average!?

Maybe the math is different in New York :think:
The accounting formula for days inventory is [units in inventory]/[daily selling rate].

However, the numerator does not necessarily represent only dealer stock units physically at dealership lots. Vehicles in transit and sold orders (for fleet and individual customers alike) are factored into the calculation as well.

Speaking of sold orders, I hope Cadillac encourages prospective new car customers to spec out and order their vehicles, and also increase a la carte options. The packaging of options and trim levels on MY 2015 Cadillacs is too restrictive, IMO.
 
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This comparison is disingenuous!
The CTS is a "better" car, yes. But it also moves up to a tier previously occupied by the STS, which, not surprisingly, was priced similarly to Gen3 CTS. Why does the media never mention this in any of their write-ups?
This is a self-inflicted product positioning disaster by the product manager of CTS. Some airhead product executive at Cadillac thought because CTS was popular, it should persist in an entirely different price and competition class. That person deserves to be tar and feathered.

The only solution was to rebrand CTS the "New STS." That way, you at least wouldn't be alienating current CTS customers with a pricing structure that they simply cannot swallow. Those buyers bought CTS because it was cheap not because of the name or luxury behind it. It's no surprise they won't spend money to buy the new CTS. CTS is in fact selling about as well as the old STS was.
Cadillac really should have done this... I know you've stated it (or something similar) since the ATS was announced, and I agree with you. The ATS should've been the "CTS" and the current CTS should've been branded the "STS." It would've helped both current models. It would've been a little dicey for the first year, as the ATS was available a long time before the current CTS, and it may have been a little confusing, as the current CTS simply was not ready for launch. But they could've put a special designation on the outgoing second gen CTS model... "CTS Classic?" :D

Will the upcoming "CT" + number nomenclature help or hurt the situation? I don't believe it will hurt, but it depends on how they start promoting the brand itself. However, the articles will continue to tell half the story regarding the current CTS' rise in stature & price, and its fall in overall sales for the foreseeable future. It's easier for them to read a sales chart and report on that than to do some actual investigating.
 

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This comparison is disingenuous!
The CTS is a "better" car, yes. But it also moves up to a tier previously occupied by the STS, which, not surprisingly, was priced similarly to Gen3 CTS. Why does the media never mention this in any of their write-ups?
Probably because everyone's forgotten about the poor-ol' STS. I suspect it was forgotten 2 years before it finally died.

This is a self-inflicted product positioning disaster by the product manager of CTS. Some airhead product executive at Cadillac thought because CTS was popular, it should persist in an entirely different price and competition class. That person deserves to be tar and feathered.

...The only solution was to rebrand CTS the "New STS." That way, you at least wouldn't be alienating current CTS customers with a pricing structure that they simply cannot swallow. Those buyers bought CTS because it was cheap not because of the name or luxury behind it. It's no surprise they won't spend money to buy the new CTS. CTS is in fact selling about as well as the old STS was.
True, but Academic now. I've certainly written the same thing more than once. The tricky bit was what to do with the Gen 2 CTS for the year or so it was on the market before the new one arrived. I mentioned re-naming it "STS", but that wouldn't have solved anything. It would still be a $38K car becoming a $48K car.
 

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What this and so many other articles of the same ilk repeatedly fail to comprehend is that it is the ATS that replaced the 2G CTS in the entry-level segment.

And yes, while sales of the ATS have been a major disappointment, but not surprising considering the bone-headed move to give it the tightest interior room in the segment.

As for the CTS, while Cadillac was too optimistic about sales and hence ramped up supply beyond what it should have been, it is the 3rd best selling sedan in the lux midsize segment (which includes the full-size FWD offerings priced like midsizers).

E-Class - 4,737
5 Series - 3,105
CTS - 2,446
A6 - 2,061
GS - 1,836
XTS - 1,697
Q70 - 559
MKS - 449
RLX - 225
S80 155

And in that price segment, the only automaker to beat Cadillac last month was MB.

Cadillac is doing much better in the mid-price sedan segment than in the entry-level sedan segment and that has to do w/ better overall packaging (as well as having both the CTS and XTS in the same price segment).
 

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Probably because everyone's forgotten about the poor-ol' STS. I suspect it was forgotten 2 years before it finally died.


True, but Academic now. I've certainly written the same thing more than once. The tricky bit was what to do with the Gen 2 CTS for the year or so it was on the market before the new one arrived. I mentioned re-naming it "STS", but that wouldn't have solved anything. It would still be a $38K car becoming a $48K car.

I think th sonly way around the time gap would be to use some out of the box thinking.
ATS launches as CTS, while the old CTS Classic is phased out, maintaining only the high end versions of the car for sale, immediately distancing the out-going car.
You'd sell 2 CTS's in tandem.

Now about 6 months into that and approximately 6 months before the "STS" would roll out, Cadillac would have launched a marketing blitz to build the buzz around the "return" of the STS. Offer a Tesla-like pre-order system at your local dealer, where you can sit at a large screen monitor and pick and choose your options and place your order.

At which point, when STS launches, CTS Classic sales are halted. Any remaining on lots go on clearance or fleet or exported. Whatever.

There would be no way around having the old CTS. Cadilllac would have had to bite the bullet in the short-term. But at least in the long-term, they'd be a lot better off.
 

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The whole "raising residuals" isn't as easy as it sounds.......... The demand for your products needs to increase (or cut the supply) otherwise it just doesn't work............

By GM "playing hardball" it’s actually opening the door for Audi/BMW/M-B to grab existing Cadillac owners, and it certainly discourages current Audi/BMW/M-B from jumping ship.
It sucks, but it's a marathon not a sprint.

Cadillac has to lose now for it to win later. Just how it has to be. It can't be done another way. New crossovers and new models will help Cadillac. Closing ****box dealers and consolidating them into larger ones will also help.

You want Cadillac to win, don't halfass their designs. G4 CTS and G2 ATS should emulate the shock of the G2 CTS as well as the elegance of Ciel and Elmiraj.

Actually translate that level of design to volume production cars and people will be creaming themselves to get in line to buy one.

I think th sonly way around the time gap would be to use some out of the box thinking.
ATS launches as CTS, while the old CTS Classic is phased out, maintaining only the high end versions of the car for sale, immediately distancing the out-going car.
You'd sell 2 CTS's in tandem.

Now about 6 months into that and approximately 6 months before the "STS" would roll out, Cadillac would have launched a marketing blitz to build the buzz around the "return" of the STS. Offer a Tesla-like pre-order system at your local dealer, where you can sit at a large screen monitor and pick and choose your options and place your order.

At which point, when STS launches, CTS Classic sales are halted. Any remaining on lots go on clearance or fleet or exported. Whatever.

There would be no way around having the old CTS. Cadilllac would have had to bite the bullet in the short-term. But at least in the long-term, they'd be a lot better off.
Is there a rule against renaming a current model an old model? Doubt it.

ATS could launch as CTS, you rename successive model year G2 CTS's, only sold loaded to the balls, STS's.

There's no good way to go about it without totally stopping G2 CTS sales.
 
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