Cadillac will not crank up incentives just to boost sales, says Michael O'Malley, the brand's general marketing manager. Discounts erode used-vehicle values.
'Cadillac has to be run like a luxury brand,' he told Special Correspondent Michelle Krebs at the National Automobile Dealers Association convention in Las Vegas two weeks ago.
In General Motors' channel strategy, Cadillac-Oldsmobile dealerships are considered the ideal if stand-alone dealerships are not feasible. Where do those duals stand now that Oldsmobile is being phased out?
There are about 200 Cadillac-Oldsmobile duals, and they made up about 20 percent of Cadillac volume in 1999. We don't have the numbers for 2000, but I suspect it is about the same. The impact of Oldsmobile stores transitioning is hard for me to get my arms around because every situation is different.
Do you have any anecdotal evidence of what dealers will do?
As an example, I was in the San Fernando Valley in California with a dealer who has a Lexus store and a Cadillac-Oldsmobile store. He's also got a Hummer franchise coming. When I first went to see him, his initial comment was he planned to play this Oldsmobile thing out, and then bring another franchise into the showroom, though he didn't know which one. I talked with him for hours, and by the time I left, he said he had enough confidence to make it a Cadillac stand-alone showroom. So he won't bring another franchise in. Now, I can't say every one of our dealers is going to be like that.
It seems Cadillac-Oldsmobile dealers get a double whammy. They've had to deal with a downward trend in Cadillac sales over the years, and now they have to deal with Oldsmobile going away completely.
Cadillac sales were up in 1999 by 10,000 units. On that point, the measure of a luxury point is not volume. We could have sold 300,000 Cadillacs this year, but we're making the decision not to do heavy discounting. Cadillac has to be run like a luxury brand.
A comment I heard from one of the Cadillac dealers at the NADA convention is he can't compete with Lincoln on leasing, a huge part of Cadillac's business. How do you help dealers become competitive on leases?
Lincoln's lower lease payments will catch up with them. The Navigator has been significantly discounted in the past couple years to keep volume up in the 45,000-unit range. As a result, their residuals have tanked. My objective with this division is to improve the residual position. That's one of the best measurements of how a luxury brand is doing. I've got to turn around that slide.
The entire lease situation is problematic right now. How do you address the problem of people who come back to the showroom for a new vehicle and the lease payments have skyrocketed because the great deals are gone? One dealer here at the convention said that kind of sticker shock was his No. 1 problem.
We've already addressed the issue especially on DeVille. We won't come out with just a discounted lease payment that you'll hear a lot about in advertising. We're handling it in direct mail.
So you're doing incentivized leases on a more select basis?
Yes. I have more subtle, covert select leases. You have to manage your brand. If I'm out there in the newspaper on a regular basis discounting, guess what happens? My brand goes down, my residuals tank, and you are in a death spiral.
What other ways do you boost residuals?
We have reduced our sales to fleets significantly this year vs. prior years. That's No. 1. There's an appropriate amount of fleet you want to do, and we were a little bit over the top on that. We're working the best we can to reduce that number. The other thing you need to do to improve your residuals is find a way to get off the excessive deep lease discounts and purchase discounts. It's tricky. You need to keep your plant running and not have problems on the retail side.
How are sales?
We had an awesome December. Our January slowed down. We reacted with a somewhat covert leasing program three weeks ago. What drove our business at the end of the year was a dealer incentive program we put in place.
Are you making a big push on certified pre-owned vehicles this year?
We're going to tune up our certified pre-owned program probably during the second half of the year. We don't have all of the details nailed down. We'll probably strengthen the program and increase marketing of it. That's part of the whole residual value improvement plan. If our customers perceive the used car has more value because of factory backing, they'll pay more for the vehicle and the residual values will increase.
How do you prevent Cadillac from ending up like Oldsmobile, which also had loyal owners, as it seeks a new kind of buyer?
I don't see that happening. There's a real latent good will for the Cadillac brand, even by the entry-lux buyers who don't have a great opinion of our brand. Escalades are in videos on MTV and Black Entertainment TV. They are in the lyrics of songs. So Cadillac seems to be OK with younger folks in their 20s and 30s. We have less forgiveness by the people in their 40s and early 50s. That's the toughest group of people for our messages and products.
Generally, after years of Cadillac talking about the women's market and how important it is to the future of the franchise, I don't get the sense women are important to Cadillac, especially in view of the new design theme.
I don't know why you wouldn't get that sense. Hey, I have six daughters, and I'm married to a woman. I want Cadillac to appeal to women. No doubt about it. They make up a significant portion of the buying public, and they have a significant influence over the decisions.
You've been head of Cadillac for almost a year. What have been your top priorities?
My top priority in the past year has been to make sure we get our global plan lined up. We've worked on Asia-Pacific. We're still working on our European marketing and distribution plan, and we're getting close. We're working on a five-year marketing and distribution plan for the U.S., Canada and Mexico. I've been fine-tuning the design direction for the new products. I've spent time with my team trying to get them to think about running Cadillac like a luxury brand.