Cadillac builds pricing power, even as sales sag
DETROIT -- Cadillac's effort to reshape business operations, build its brand and overhaul its dealer network is beginning to pay dividends -- not in terms of sales, but in terms of pricing.
The brand's average transaction price has risen 25 percent in the last five years to $54,488 per vehicle sold in 2017 — making it among the best in the luxury segment, which last year averaged $48,752, according to J.D. Power and Associates.
Cadillac's pricing gains reflect in part a smaller volume base, coming amid a 14 percent decline in U.S. sales since 2013. Still, they offer some validation for the strategy espoused by brand President Johan de Nysschen, who has been steadfast in stressing the brand's global long-term health over near-term volume and market share gains in the U.S.
A big element of that strategy is Project Pinnacle, a retail program intended to improve the brand by overhauling the retail network with restructured incentives and stricter performance requirements.
Overall, Project Pinnacle is "doing as it has been set up to do," de Nysschen said Jan. 16 during the Automotive News World Congress.
As evidence, he cited the growth of Cadillac's certified used-vehicle program and "elevated customer experience" at dealerships, along with rising transaction prices.
"The success in the near term is about more than just sales charts," de Nysschen said.
The big key to Cadillac's pricing power is the Escalade large SUV, which Uwe Ellinghaus, the marque's former chief marketing officer, has called "a brand in its own right." Last year, Cadillac sold nearly 23,000 Escalades at prices averaging $84,260, plus 14,700 Escalade ESVs at an average of $88,072 a pop, according to Kelley Blue Book, whose data sets vary from J.D. Power's.
Cadillac's silver lining
|Amid slumping sales, Cadillac has seen steadily rising transaction prices.|
|U.S. sales||Average transaction price|
The average for the luxury crossover/SUV segment is $82,462, according to KBB.
Yet most of Cadillac's growth in pricing has come from the CTS midsize car, which got a significant pricing bump during a 2014 model-year redesign. The average transaction price of the CTS, including a high-performance V-series model that stickers at nearly $90,000, increased to more than $58,000 last year, up 24 percent from 2013, according to KBB. (The lower denominator helps, too: CTS sales fell by more than one-third last year.)
All of Cadillac's nameplates except the XTS, down 1.9 percent, have experienced higher transaction prices since 2013, KBB reports, though some eased last year.
Cadillac sales are another story, tumbling in the U.S. amid a broader retreat in the luxury car market.
"I think you can look at the ATP growth over the years and it looks great. It looks like a huge success, but then you look at sales," said KBB analyst Tim Fleming.
"They've had some tough times over the years in regard to sales."
De Nysschen said 2017 was a "challenging year for the entire U.S. luxury market," noting record levels of incentive spending in the luxury segment. Incentive spending by luxury brands last year rose 14 percent to an average of $4,288 per vehicle sold, according to Autodata Corp.
|Cadillac’s utility vehicles are leading the rise in the brand’s average transaction prices.|
|Source: Kelley Blue Book|
Cadillac's 11 percent increase was lower than the industry average, but its average incentive spend per vehicle was $6,881 -- the highest of any luxury brand, according to Autodata.
J.D. Power has Cadillac’s incentive spend last year at $6,393 on average per vehicle -- seventh among luxury brands and in-line with Cadillac’s internal data.
Cadillac hopes the introduction of the XT4 compact crossover this year will help reverse the sales trend, just as the XT5 midsize crossover has helped the brand's sales and pricing.
Since going on sale in 2016, the XT5, which replaced the SRX, has carried a $3,200 to $4,000 premium compared with its predecessor. Its average transaction price was more than $49,100 in 2017, according to KBB.
The XT4 will compete in one of the fastest-growing segments in the industry. KBB reports the average transaction price of the luxury compact crossover/SUV segment in December was $44,239.
The XT4 is the first of several new crossovers Cadillac is adding over the next four years.
By 2022, Cadillac is expected to have four crossovers and just three cars, plus the next-generation Escalade.
De Nysschen said, "At the conclusion of this first phase of the plan, Cadillac will be armed, for the first time, with a family of premium crossover vehicles, positioning us well to exploit the market."
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