Cadillac, amid U.S. sales slump, mulls more features to hold luxury prices

Editor's note: An earlier version of this story incorrectly described the change in Cadillac's U.S. sales in the first eight months of 2014. 

DETROIT (Bloomberg) -- The two men charged with defending General Motors' Cadillac brand 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 the brand last month as president, saw the depth of their challenge on Wednesday when Cadillac reported an 18 percent plunge in August U.S. sales.

The brand's U.S. deliveries have slipped in five out of eight months this year in an overall market that has grown 5 percent. 

Sales of the redesigned CTS sedan, whose angular styling first helped breathe new life into the brand in 2002, plummeted 35 percent after a 29 percent 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, Calif. "The price is definitely an argument" when trying to break through to target buyers who aren't yet considering Cadillacs.

Cadillac also is preparing for next year four new models, including a redesigned SRX SUV 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.

German premiums

The CTS sedan starts at $45,100, according to GM's website, while the 2013 model started at $39,095 in May 2013. When the car's pricing was first announced in 2001, it was priced at $29,990 with features taking the cost to about $35,500.

The recent price jump has hurt sales, said Michelle Krebs, a senior analyst with Autotrader.com.

"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."

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

Ellinghaus, the former marketing chief for BMW AG, was hired to help bolster Cadillac's image worldwide. He was joined last month by De Nysschen, who previously led Nissan Motor Corp.'s Infiniti and Volkswagen AG's Audi operations in the U.S.

New models

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 U.S. 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-Benz unit in the U.S.

In 2012, Cadillac introduced two new models straddling the CTS in size -- the smaller ATS and the XTS fullsize sedan -- as its first new offerings since 2009's SRX SUV and 2010's coupe version of the CTS.

The ATS in particular helped drive a 48 percent gain for Cadillac's cars in the U.S. last year. That surge ended this year. Cadillac's 5 percent decline this year through August, to 114,008 vehicles, compares with gains of 3 percent for GM and 5 percent for the industry.

Overall, U.S. sales of luxury-branded cars and light trucks have expanded 8 percent this year to 1.2 million through August.

To bolster sales, Cadillac is heaping an average of $7,701 in incentive spending on its vehicles to entice buyers, the most in the industry, researcher Autodata Corp. reported Wednesday. 

Luxury sales

Among luxury-automakers, German manufacturers have kept the sales lead for the year, even as volume at Lexus, Toyota Motor Corp.'s premium brand, surged in July and August.

BMW sales rose 12 percent through August, leading Mercedes by about 5,100 to be the top-selling luxury brand in the U.S. so far this year.

For the month, their sales rose 11 percent and 9.4 percent, respectively.

The figures don't include Daimler's cargo vans and Smart cars, and sales at BMW's Mini brand, which aren't luxury vehicles.

Audi's August sales rose 22 percent to 17,101, led by the new, sub-$30,000 A3 and the A4. The German brand's sales have risen 15 percent so far this year. Toyota's Lexus took the luxury segment's sales crown for a second straight month, with a 10 percent gain to 32,809 for August.

Lexus' U.S. sales have risen 16 percent so far this year to 198,831.

CTS slump

CTS sales have declined 6 percent 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 a sticker price that's $7,500 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.

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

Transaction prices

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 percent to $53,148 compared to the same month a year earlier, according to Edmunds.com.

Average transaction prices for luxury brands, in general, rose 4 percent in that same period to $48,972 while GM as a company gained 6 percent to $54,908.

"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.

"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."