What's the Matter With Cadillac?

General Motors (NYSE: GM  ) has set an ambitious goal of reaching a 10% pre-tax margin in North America in the next few years, up from less than 8% today. Revitalizing Cadillac -- its top luxury brand -- is a key part of GM's plan to boost its North American margins. To that end, GM is introducing a variety of new Cadillac models.

Until recently, this was catalyzing impressive sales growth at Cadillac. However, Cadillac's momentum fizzled at the end of 2013. In the first quarter of 2014, Cadillac sales declined more than 7% in the U.S. While Cadillac has introduced several highly regarded new models, luxury car buyers don't seem particularly interested in what the brand is offering today.

The promise of new vehicles
During 2012, Cadillac launched two brand-new vehicles for the 2013 model year: the XTS full-size sedan, and the ATS compact sedan. The XTS was designed to appeal to loyal Cadillac customers who wanted a roomy luxury car. By contrast, the ATS was designed to compete directly with the popular BMW 3 Series and other German compact luxury cars.

The Cadillac ATS was designed as GM's response to the BMW 3 Series (Photo: GM)

The addition of the ATS and XTS sedans vastly broadened the Cadillac portfolio, which was down to just three models in early 2012 (the CTS mid-size car, the SRX crossover, and the Escalade SUV). This paid big dividends last year, as Cadillac became the fastest-growing, full-line, luxury brand in the U.S.

In 2013, U.S. Cadillac sales grew 22% to 182,543 vehicles. Combined, dealers sold more than 70,000 ATS and XTS sedans last year. This helped make up for a sharp drop in CTS sales and roughly flat sales for the SRX and Escalade.

Malaise sinks in
Cadillac's sales momentum began slowing in Q4 last year, and in the last few months deliveries have started to fall. While the ATS and XTS both put in solid first-year performances, they appear to have peaked early.

Year to date, ATS sales are down 25% and XTS sales are down 17%. A small decline could be explained by bad weather or the timing of deliveries, but these double-digit declines indicate a broader problem.

The Cadillac XTS appeals to a fairly small slice of car buyers (Photo: GM)

Falling sales of the XTS suggest that upgrade demand from Cadillac loyalists has been fulfilled, and that the market for a classic Cadillac "boat" is very limited. Meanwhile, weak ATS sales point to the difficulty of poaching customers from the German luxury brands.

For example, BMW 3 Series and 4 Series deliveries (which BMW reports together) are up 18% this year. BMW has sold nearly 25,000 of them, whereas Cadillac dealers have sold just 7,318 ATS sedans in 2014. To be fair, the Mercedes C-Class has not fared as well -- sales are down 26% year to date -- but Mercedes has still sold over 17,000. That's more than double the Cadillac ATS sales total.

The new wave of new vehicles
Cadillac has introduced another two new vehicles in the past six months or so. A redesigned CTS mid-size car went on sale last fall. In 2012 and 2013, the launch of the new ATS and XTS sedans cannibalized CTS sales. Last year, CTS sales were more than 40% below the 2011 level.

While the new CTS has gotten very good reviews, sales have been sluggish thus far. Through March, sales were down slightly year over year, and well below the peak sales level from a few years ago.

Cadillac's redesigned CTS mid-size car went on sale last fall (Photo: GM)

I was previously worried that the CTS could cannibalize ATS and XTS sales, but the reality has been even worse; sales are down for all three models in 2014. Last month, the CTS returned to growth, but sales figures are still far short of anything that could be called successful.

Lastly, Cadillac's brand new ELR plug-in hybrid coupe went on sale at the beginning of the year. The ELR was never expected to be a big seller. GM aimed to sell about 3,000 this year, according to Automotive News. However, dealers delivered just 180 in the first quarter!

Cadillac dealers have yet to sell even 100 ELRs in a month (Photo: GM)

The slow start can be attributed in part to low availability, which is now improving. However, the ELR also has a pricing problem. With a base price of more than $75,000, the ELR costs just as much as Tesla Motors' higher-performance Model S. Consumer Reports reviewers liked the ELR's design, but concluded that the price was way too high.

Wrong order?
Interestingly enough, the only Cadillac model to post a sales increase last quarter was the SRX crossover: one of the oldest vehicles in Cadillac's portfolio. The SRX is benefiting from the surging popularity of small utility vehicles. However, in a case of bad timing, small utilities will be the last part of Cadillac's vehicle portfolio to be refreshed.

Cadillac is expected to offer a redesigned SRX for the 2016 model year. GM is also reportedly planning to introduce two more Cadillac crossovers around 2017 (one that is smaller than the SRX and one that is larger).

Assuming that crossovers are still in vogue three years from now, Cadillac could be in good position to challenge the luxury segment leaders then. However, that's a long time to wait, and a lot could change between now and 2017.

Foolish wrap
It's impossible to say for sure why Cadillac's sales have hit a brick wall. Whatever the cause, it's becoming increasingly clear that even with a completely refreshed car lineup, Cadillac is not a serious challenger to BMW, Mercedes, and Lexus.

The ATS, CTS, and XTS mainly seem to be competing with each other right now. Meanwhile, the luxury crossover market is booming, but GM chose to focus on updating its cars before its SUVs and crossovers. As a result, it may take several years -- and new crossover model introductions -- for Cadillac to mount a credible challenge to the luxury segment leaders.

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Read/Post Comments (13) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 06, 2014, at 7:17 PM, olderthandirt wrote:

    Three things that may be a factor. First, CUE. While promising, it still needs some bugs worked out. Hands free Siri hasn't even been mentioned in any CUE ads. Is it coming or isn't it? And now Apple announces Carplay and GM isn't one of the first adopters. I've talked to several people who are waiting to see where this goes before purchasing a new Cadillac. With all the new innovations this seems to be an afterthought. Second, GM introduced the CTS coupe not long after the revised sedan. Some are probably waiting on the coupe and third, They are changing their logo. Why buy a 2014 CTS when the 2015 model should have a new logo. I happened to like the wreath but others don't. Wait a few months and you get the new logo as well. These issues might seem petty to some but for others it's wanting to have everything just right before making this purchase.

  • Report this Comment On April 06, 2014, at 10:09 PM, g1 wrote:

    As a young Cadillac enthusiast , I hate to say it , but all of their lineup is overpriced compared to the entry level German competitors. The CTS took an 8k price increase for a four banger base model with a "can't decide whether I like styling " , the ATS is way overpriced for what it is compared to BMW 's 1 series , Mercedes CLA , and audiis upcoming a-3 . not to mention the cluster $&@? that is CUE .. I guess my CTS coupe will unfortunately be my last Cadi!! If anyone at GM is listening when you introduced the previous version of the CTS sedan and coupe it wowed everyone! This new version not so much ! When will you learn ?

  • Report this Comment On April 07, 2014, at 4:14 PM, majik wrote:

    I've been a fan for a while, and was moving along the path to get a Cadillac CTS. Had a 2005 XLR that I regret selling, and was looking at a 2013 Coupe. The ATS seemed a bit small and tight, but heard the coming of a CTS redesign and held off. I agree with other's comments about a coupe, and I think somebody dropped the styling ball... The creases and angels gave Cadillac a contemporary flair, image, and attraction to younger buyers or those young at heart. The new models, with rounded lines and taillights seem to harken back to the day of Grandpa's Buick or Olds. Boring and fatigued, not even LED lights can excite these designs.

  • Report this Comment On April 07, 2014, at 4:37 PM, normgarry wrote:

    #1. C.U.E is TERRIBLE - especially compared to Chrysler's Uconnect 8.4n

    #2. The cars are almost $10,000 overpriced. A CTS with 3.6-L V6, AWD, moonroof and C.U.E. Costs more than a similarly equipped XTS.

    #3. You get better deals from Chrysler and Lincoln- or TESLA.

  • Report this Comment On April 07, 2014, at 4:43 PM, vinnieboiblue wrote:

    I said it before and I will say it again. Although they build good cars, their reputation was down. Soon as they brought it up to par with the Germans and Asians, they started hiking prices to the point where the edge they had was gone. There is NO REASON, to justify paying the same price of an American luxury brand to that of foreign cars. The ATS should have had a starting price of $29,995.The XTS @ $41,000, The CTS $49,500. The XLR @ $51,000. You slowly raise it . The way GM did it, was huge bump to the point where consumers thought they may as well buy an import.

  • Report this Comment On April 07, 2014, at 5:49 PM, cavmagdotcom wrote:

    Caddy needs to give these cars a true identity. No one wants to admit it , but the Escalade is by far their biggest seller. It has also become the car that most identify with Cadillac. Now that GM has dumped Hummer, the Escalade has that market all too itself.

    The ATS, CTS, and XTS are too close in size and features, Make the CTS the Seville and the ATS the Chalice and only offer those two.

    The SRX, or is it SUX? Becomes the Cutlass, and for God sake, any new cars you introduce come with a NAME.

    Like the return of the XLR as the LeMans XLR.

    You're welcome.

  • Report this Comment On April 07, 2014, at 5:56 PM, NoVaEarly wrote:

    Sales are down because Cadillacs don't offer a compelling reason to buy them. They aren't as well engineered and don't handle as well as the competition. They don't hold their value as well and cost too much when compared to other luxury brands and God are they ugly. A kindergardener could come up with better designs. Give the designer(s) more than three minutes with an etch-a-sketch. Cadillac is simply outclassed by Acura, Audi, BMW, Lexus, and shockingly even the Hyundai Genesis.

  • Report this Comment On April 07, 2014, at 6:00 PM, cmrose wrote:

    It's very simple. They are way overpriced. Not bad cars but not really great cars. Cadillac dealers appear to be quite proud of their cars. They forget that cars are meant to be sold.

  • Report this Comment On April 08, 2014, at 7:29 AM, AcuraT wrote:

    One thing this artcile fails to mention - internal competition at GM. The ATS competes with the Buick Regal GS. That Regal fully loaded is $42,000, expensive for a Buick for sure - but the pricing of the loaded Cadillac ATS with the 2.0 L turbo (same engine and transmission) with AWD is a little bit more. Problem is, the two cars perform nearly the same and have nearly the same level of technology features internally. I test drove both recently, and for the price point I liked the Buick better. The ATS is a great car, but the extra money - is it really worth it? I test drove a BMW 3 series that was loaded as well and sure, it drives as well as the Cadillac (which still drives marginally better than the Buick Regal), but for the money being talked about - is it worth paying more for the extra Cadlilac performance? Of course the availablity of the 3.6 V6 in the Cadillac does differentiate it even more - but the cost is much more then.

    Compare the XTS to the loaded Buick LaCrosse. In that case, it is the exact same car. They even share the same platform, unlike the ATS and the Regal which are two different platforms (Zeta for Cadillac, Epsilon II for Regal). The furnishing may be different between the XTS and LaCrosse, but you cannot tell me the cars are all that different besides Cue - which is not necesarily a good thing for Cadillac as the Buick system which is simpiler has been getting good reviews (and the even simpiler Chevy system has the best reviews overall).

    Cadillacs are priced like BMWs now (and offer a similar product, although as mentioned by others, as Cue is a good idea gone haywire - that is a deterrent). It will be interesting to see when the new Esclande is fully launched if iit juices the overall numbers for Cadillac.

  • Report this Comment On April 08, 2014, at 9:50 AM, Localyokul wrote:

    The Chevrolet Impala is also using the same

    platform and if you put all the bells and whistles on one, you have a Cadillac, (without the emblem)

    (Just sayin)

  • Report this Comment On April 08, 2014, at 10:02 AM, Localyokul wrote:

    Speaking of the New Impala !! If Chevrolet built a 4 seat convertible with a usable back seat and trunk space for a couple of pieces of luggage, they could really tear up the BMW- Mercedes-Audi sales. Not to mention sales to car rental agencies in vacation areas like California-Hawaii-Florida Etc.Chrysler has decided not to build the 200 convertible for 2015. This only leaves mustang for an all American convertible.

  • Report this Comment On April 08, 2014, at 1:34 PM, TMFGemHunter wrote:

    Thanks for the comments everybody.

    I'm sure that Cadillac could sell more cars with lower prices (the same goes for Chevy selling more trucks if it ramped up discounts). But low prices or big discounts drive lower up-front margins (bad for GM) and lower residual values (bad for car owners). It's a tough problem to convince people to give Cadillac a try when it's priced around parity with the other luxury automakers.

    BTW, I don't buy the argument that Cadillac is more expensive than foreign luxury car brands in a like-for-like comparison. It's just not selling luxury cars at a big discount anymore.

    Adam

  • Report this Comment On April 09, 2014, at 5:25 PM, HTXCadfan89 wrote:

    Y'all are insane. Give it time.. Do a little research and you will notice this spring has been a crap spring for many many companies. All i know is when i drive, i see more and more of these things driven by younger and younger buyers. I live in Texas and we love our Caddies, maybe thats part of it, but have a little faith. I havent seen anyone younger than 35 in a Lexus in a year btw. Just saying.. That's the grandad mobile.

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