General Motors Company: Did You Notice Cadillac's Pricey Mistake?

As I have been warning investors of the potential disaster lurking at General Motors (NYSE: GM  ) due to its recall issues, I have been taking a deeper look into the company. 

More specifically, I am looking at GM's luxury lines in Buick and Cadillac, and questioned whether Ford's (NYSE: F  ) Lincoln line could be catching up to its two crosstown luxury brand rivals. 

More can be read about that topic in, "Will General Motors Continue Dominating Ford in Luxury?"

However, I found an interesting trend that only seemed to apply to Cadillac -- not Buick -- suggesting that there could be a specific problem tied to the brand, rather than General Motors as a whole.

From good to bad
After watching sales surge 22% in 2013, Cadillac's sales have taken a dive in 2014, down 7.3% in the first quarter and down 4.4% year to date. Its competitors -- including European, American, and Asian luxury automakers -- have all posted sales gains in the same respective time frame. Below is a look: 

Brand

2014 YTD Sales

YTD Change

     

Cadillac

53,488

(4.4)%

Buick

72,112

11.30%

Lincoln

28,406

20.80%

BMW

97,579

10.70%

Mercedes-Benz

105,519

7.10%

Audi

50,881

7.50%

Lexus

88,250

17.90%

Source: GoodCarBadCar.net

The question is simple: Why are sales of Cadillac down, while sales for other luxury automakers are up?

Some could simply argue that the weather hurt sales, along with the slow rollout of several key models, including the new Escalade and ATS, due out in mid-spring and late summer, respectively. 

While the slow vehicle rollout may be slightly responsible for the sales dip, the weather can't possibly be blamed. It could if other luxury automakers experienced a dip in sales. But since they're not, it's obvious that consumers are making a conscious decision to steer clear of Cadillac.

Price hikes not helping matters
This problem is rather precarious, and I've seen and heard more than a few consumers gripe about the new price hikes. But perhaps that's only one of the problems. Below I have highlighted 2014's prices versus the prices in 2013:

Model 

2013 Price

2014 Price

Change ($)

Change (%)

         

CTS

$39,990

$46,025

$6,035

15.1%

ATS

$33,065

$33,990

$925

2.8%

XTS

$44,995

$45,525

$530

1.2%

SRX

$38,225

$38,430

$205

0.5%

Escalade* 

$64,740

$72,690

$7,950

12.3%

ELR

N/A

$75,000

   

*The 2014 price is based on the 2015 model, set to hit dealers this spring. Source: Edmunds.com

As seen above, there have only been two meaningful price hikes this year, that being in the Cadillac CTS and the Escalade. However, in the case of the Cadillac CTS, that doesn't fully explain sales results.

The CTS has experienced the second-best, year-over-year sales results for Cadillac models through the first quarter of 2014, (admittedly however, it is still negative). The results are below:

Model 

Q1 (2014)

Q1 (2013)

Change (%)

       

CTS

7,659

7,862

(2.6)%

ATS

7,318

9,750

(24.9)%

XTS

7,296

10,220

(28.6)%

SRX

14,903

12,856

15.9%

Escalade

5,880

7,130

(17.5)%

Source: GoodCarBadCar.net 

Cannibalization and competition
So if the ATS and XTS models didn't see any meaningful price hikes -- 2.8% and 1.2%, respectively -- why have sales been absolutely crushed? In regards to the XTS, I would suspect that the CTS may be cannibalizing sales, due to its similar price point and it being the recent recipient of the coveted Motor Trend "Car of the Year" award.  

One possible theory for the drop in ATS sales is competition. After sales surged 447% year over year in 2013, the ATS has suddenly fallen from its pedestal. But when you compare the pricing points of the ATS to a BMW 3 Series, an Audi A3, or Mercedes-Benz CLA-Class, it's really not much different. Below are the pricing points:

Model 

2014 Price

Q1 YoY Sales Gain (%)

Cadillac ATS

$33,990

(24.9)%

Audi A3

$30,795

16.2%

BMW 3 Series

$33,025

18.1%*

Mercedes-Benz CLA Class

$30,825

(Not for sale in Q1 2013)

*BMW reports 3 Series and 4 Series under one statistic. Source: Edmunds.com

Perhaps, Cadillac's German-built competitors are dominating the low-end luxury car market. With all similar pricing points, U.S. consumers may opt for what has historically been considered by many as more "supreme" luxury rides.

More specifically, the Mercedes-Benz CLA-Class may be stealing market share from the Cadillac ATS. The new sports car is clearly aimed at younger buyers, and they may opt to sport a Mercedes-Benz over a Cadillac, especially at the lower pricing point. 

Since the CLA-Class went on sale in September 2013, ATS sales have slumped, on average, 9.33% each month. Below shows monthly sales figures for the ATS: 

Month

ATS Sales Pre-CLA (Jan. 2013-Aug. 2013)

Jan.

2,781

Feb.

3,382

March

3,587

April

2,735

May

3,249

June

3,459

July 

2,905

Aug.

3,380

   
 

Monthly average:  3,185

Source: GoodCarBadCar.net

Month

ATS Sales Post-CLA (Sept. 2013-March 2014)

Sept.

2,739

Oct.

2,782

Nov.

3,443

Dec.

3,887

Jan. 14

1,909

Feb.

2,472

March

2,982

April  2,737
 

Monthly average:  2,888

Source: GoodCarBadCar.net

Cadillac's shining star
The Cadillac SRX is the only model showing significant sales growth in 2014, up 19.1%. This is slightly surprising, given that its total sales actually decreased 1.2% in 2013. But demand remains for the crossover, which is the only shining star for Cadillac thus far in 2014. 

One final theory
I do have one final thesis as to why Cadillac sales are declining. The luxury brand is generally driven by people who make good money. Usually people who make good money are affluent individuals, and have likely seen the not-so-hot headlines about General Motors. 

Sales did take a hit in January -- before all of the recall news broke -- but the weather was horrendous. All the automakers felt the pinch that month. Cadillac experienced a small sales dip in February, before reporting a 6% sales drop in March and recovering slightly in April, up 5.1%.

At this point it's too early to say. But sales for Cadillac, and General Motors in general, could took a hit due to the negative publicity the automaker has had in the past several months. In any regard, the sour news won't help sales going forward. 

The bottom line
A combination of price hikes, competition and cannibalization are all likely thwarting sales of Cadillac. Since we're only through the first four months of 2014, a lot can change going forward -- for better or for worse. 

For those savvy investors looking for Cadillac to churn out more sales gains this year, keep an eye on the brand's total sales, and its competitions' sales to see if it's a Cadillac-specific issue or a luxury auto market issue. So far, and unfortunately, it seems to be the former.

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Read/Post Comments (16) | Recommend This Article (10)

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 May 17, 2014, at 6:53 PM, fasteddiejr wrote:

    Cadillac USED TO BE THE FLAGSHIP OF USA AUTOS. They suck now. The last thing i want is a luxury car the size of a Camry; a Caddy Truck that looks like a Chevy; a "SRX" station wagon that looks like a Mazda. GM was bailed out by idiots, took them 5 years plus to get back into the black, but it is still run by idiots. Designers are 20 years behind the times. Even Lincoln is trying to incorporate it's 30's look of front end grills. CADDY? nothing. I will buy a BMW or ROLLS before i put my money into a US made auto. My current auto, 2001 Merc Grand Marquis, with parts from Mexico, US, and assembled in Canada is worth more to me than any Cadillac on the road today. Good Luck USA. I will continue to buy foreign.

  • Report this Comment On May 17, 2014, at 7:29 PM, funfundvierzig wrote:

    The orchestrated fraud of GM Management in covering up deadly defects in millions of cars for over a decade may be daunting to some would-be buyers.

    ...funfun..

  • Report this Comment On May 17, 2014, at 7:35 PM, lem2004 wrote:

    You do that fasteddire,keep sending your money over seas.

  • Report this Comment On May 17, 2014, at 7:38 PM, lem2004 wrote:

    foofoo does nothing but troll GM articles.Knows nothing about autos.

  • Report this Comment On May 17, 2014, at 8:12 PM, npruitt wrote:

    To be honest, Cadillac is over-rated. I've owned 4 and the first 3 were good quality. In 06', I bought a new DTS, and it was the biggest hunk of junk that I've ever owned. To start off, within a year of ownership, the driver seat wore out and looked ragged, and GM wouldn't do anything to fix it, even though the car was under warranty. Then ,The tire pressure censors kept going out.

    Cadillac used to be a quality vehicle, what has happened? Cheaper quality and higher prices!

  • Report this Comment On May 17, 2014, at 8:42 PM, vinnieboiblue wrote:

    Even before these recalls, I said GM, particularly Cadillac was making a HUGE mistake in pricing. Even tho certain models have grown and are better performance wise, they priced themselves out of consideration to potential buyers. First, they got out of bankruptcy and still owed $10 billion dollars that was written off by the Government. Second, they came out with some models although good were still lacking the "it" factor and overpriced. There is no reason for why they decided to price their cars the same as the Germans and others. They should have undercut them by at least $10-15 thousand. You need to rebuild your reputation and you do that by offering cars that meet or exceed the competition and take a page from the Koreans by selling it cheap. Word gets around when you undercut the opposition by offering a cheaper car at a lower price. Then slowly raise it.

  • Report this Comment On May 17, 2014, at 8:47 PM, ScamuelJones wrote:

    Mary Barra promised that GM was going to stop making "crap cars!" SHE LIED! But the Ford makes carp cars as well, especially my 2008 Ford Crown Victoria, which is one (and I've had eight of them). My next two new cars will be Hondas or Toyotas!

  • Report this Comment On May 17, 2014, at 9:37 PM, marc1093280 wrote:

    Cadillac really made a huge mistake raising up their prices. Why does Cadillac need to copy the Germans in pricing? If Cadillac wants to be real competitive, they should really sell their cars for less money than the competition. At $33,990, the 2.0T and CUE should come standard and the ATS 3.6 shouldn't cost more than $47K loaded. With the CTS, though, starting price should be $39,990 with the 2.0T (3.6 would be a no cost option), then the CTS V sport should start at $55K and not cost more than $64K loaded. The next-gen CTS-V sould just cost $85K loaded with every option. If Cadillac follows this pricing strategy for the ATS and CTS and try to think that way for pricing their other cars (yes pricing will vary between models), then Cadillac will be real competitive.

  • Report this Comment On May 17, 2014, at 9:54 PM, VincentPaul wrote:

    My opinion, Caddie does not have that something.

    Quality good to excellent style ok but it does not turn your head. Caddy may be a bit over priced but the entry level BMW or Mercedes is no bargain and they lack the styling found in their upscale models. I guess "I drive a beamer" or "I drive a Mercedes" now has more appeal than " I drive a caddy".

  • Report this Comment On May 17, 2014, at 10:28 PM, hunter3203 wrote:

    Cadillac is making the best cars they've ever produced. It's an impressive lineup from top to bottow. But, despite the obvious progress they've made, they still don't have the cachet of the German luxury brands. They should take a page from Lexus's book. When the LS400 was introduced, nearly everyone said it was equivalent to a $50k German luxury car but you could buy it for $35k. That value helped build their brand. Cadillac should price all of its vehicles at least 10% less than its German competition.

  • Report this Comment On May 18, 2014, at 12:28 AM, vinnieboiblue wrote:

    No one can be certain they won't make crappy cars. I do believe every maker wants a truly dependable quality car. I don't believe Mary Barra said GM, won't make crappy cars. I think she brings a fresh and new perspective to GM

    .

    I think from now on, it should be criminal if engineers knew their products were defective and tried to hide that. Those that knew GM's products were screwed should be charged with Negligent Homicide. Not only GM but all the other makers too.

  • Report this Comment On May 18, 2014, at 2:01 AM, vereyes24 wrote:

    I previously drove a BMW. When I purchased my 2011 CTE I knew it didn't have all the extra little things that made my BMW so unique and different but I still wanted to give GM the benefit of the doubt. Despite the fact that I haven't had any real problems with the quality of the vehicle I will not purchase another Cadillac. The problems that I've run into are mainly due to the quality of the service provided by the dealer and the fact that the vehicle has depreciated fairly quickly (my car only has 35K and it's value has dropped significantly). I live in El Paso, TX and the only two dealers here and in Las Cruces, NM are owned by Bravo Cadillac the quality of their service has made my next car purchase extremely easy, I'm going back to BMW. I am a loyal customer and will go back if I'm treated right in the past 15 months we've bought two Corvettes from the same dealer, but due to missing clips and lies such as claiming to perform a certain service that was really not done made me lose the trust in the brand. Oh, and by the way, I did call Cadillac Customer Service to complain and all I got was an apology. Don't they realize that it's dealers like Bravo that contribute to the mistrust of the brand??

  • Report this Comment On May 18, 2014, at 2:03 AM, vereyes24 wrote:

    Yes I agree. Engineers should also face criminal charges. They also have an obligation to provide quality products and should be held accountable. Someone's life is no game.

  • Report this Comment On May 18, 2014, at 9:18 PM, kenlichtig wrote:

    The GM holding back reporting recalls is the American version of what Mitsubishi pulled in Japan not reporting defects and hiding defects from the Japanese Government. Word of this reached the USA. American consumers stayed away from Mitsubishi brand.

    General Motors has some serious Public Relations issues from the Government Bailouts, perception the monies were not totally paid back and now their Recall Mess.

    New and resale cars are not cheap. The economy is still in a Recession. Don't believe Obama and the Democratic Leftists about the economy, Unemployment Numbers and the unreported Underemployed and the Unemployed quit looking for a job and finally how many people quit looking for work.

    Housing has tanked again. Inflation has picked up steam. With the uncertainty of the economy big ticket item sales will flounder.

  • Report this Comment On May 19, 2014, at 9:39 AM, Bkenwell wrote:

    Hey everyone ---

    Thank you for all of the comments. I guess my one point is this:

    With many consumers finally looking to get a new car, and juggling between the German-made cars (BMW, Audi, Mercedes) or a Cadillac all for the same price, which are they likely to choose?

    In many cases, the German luxury cars are actually cheaper than many of the Cadillac options. To me, this makes no sense, because I think Americans (especially the younger generation) views BMW/Audi/Mercedes as true luxury. They did not grow up with the perception of what driving a Cadillac USED to mean.

    -Bret

  • Report this Comment On May 19, 2014, at 12:57 PM, AcuraT wrote:

    Brent Kenwell, you only missed one point in your column. Why are Buick sales up? Did you ever consider those are additional Cadillac buyers who switched to the "lesser" brand. Here is my logic.

    Take a look at the XTS and the LaCross by Buick. They share the same platform, and in fully loaded form, the Buick is close to the XTS in all wheel drive. Yet it costs thousands less. I bet some sales are lost there.

    Take a look at the ATS and the AWD Buick Regal. While the V6 is not available in Buick, Buick does offer a sporty turbo 4 in the top of the line GS mode. It maxes out in price around $40,000, which is near the ATS in price. Still, it is an opportunity to get a Buick with a simlar car if not quite as luxurous.

    Then the third comparion - the Buick Esclade and the Cadillac Escalade. They are not direct competitors nor meant to be. Cadillac is truck based, Buick is car based. If you want to tow a lot, you have to get the Cadillac. Otherwise the more fuel efficent Buick meets a lot of people's needs. Again, not quite as luxurious, but for a discount of $25,000 to $30,000 - many people will buy it instead. I am in that camp. I looked at the imports as well but liked the Buick better and for the price, it could not be beat. I became for the first time a Buick owner - just as reached the age of 40 (Buick's average age is dropping now as well).

    There is a reason why Buick has surpassed Cadillac in sales in the last few years while Cadillac is having problems this year. Buick has moved upscale in a number of ways, with reliatvely lower prices while Cadillac has also moved upscale - but not offering enough more to make it worth the additional price difference in all cases.

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