Is GM's Cadillac Revival Failing?

When it arrived in 2012, the Cadillac ATS was hailed as a true BMW rival. So why are sales off 20% this year? Source: General Motors Co.

Until recently, sales at General Motors' (NYSE: GM  ) Cadillac brand were on a tear. U.S. sales of Cadillacs rose 21.9% in 2013, thanks to new models like the XTS and ATS sedans. 

But so far, 2014 has been a very different story. Through May, Cadillac sales are down 2.3% from year-ago levels. And its those same two models that seem to be the culprits: ATS and XTS sales are both sharply lower so far this year.

What's the deal? Is the long-awaited Cadillac revival turning out to be a dud?

Cadillac says they aren't worried, but...
When you look at the monthly sales charts, it's clear to see where Cadillac's troubles lie: Sales of the big XTS sedan are down 21% through May, and the much-acclaimed compact ATS is down 20%.

The midsize CTS models and the SRX crossover are both up, but not enough to make up the difference. Meanwhile, the big Escalade SUV just had a changeover to an all-new model, so inventories were thin for a while, and the ELR hybrid has only racked up token sales (fewer than 300 through May). 

The new midsize Cadillac CTS sedan is selling well, but its smaller and larger siblings have stalled. Source: General Motors Co.

That's the whole Cadillac lineup. And while GM has to be encouraged by the reception that the all-new (and hugely improved) CTS sedan and Escalade SUV are getting (up 39% and 30%, respectively, in May), the big drops for the ATS and XTS have to be worrisome.

GM says it's not worried. Cadillac spokesperson David Caldwell told me that there's lots to be encouraged by. For starters, Cadillac is backing off of fleet sales, in favor of more profitable retail sales. Through April, he said, Cadillac's fleet sales were down 40% -- and fleet sales of the ATS were down 95%.

Caldwell also told me that some of the slippage we've seen with the XTS and ATS is simply a matter of shifting customer preferences. Luxury sedans in general have been relatively weak next to SUVs and crossovers. The nearly 21% gain for Cadillac's SRX through May -- which, Caldwell notes, is an older model nearing the end of its life cycle -- is evidence of that.

True enough. And it's also true that the new CTS sedan is doing very well for Cadillac, and that's probably taking some sales from the other sedans. And at least as far as retail goes, the brand isn't doing badly: April's results were Cadillac's best April in retail since 2007, Caldwell noted.

But is there something else going on?

The ATS may be last year's news
I decided to get a more objective view. Edmunds.com's Senior Analyst Jessica Caldwell (no relation to Cadillac's David) dug into her numbers and offered up a different perspective.

As she sees it, the ATS's sales lag is just part of Cadillac's growing pains. GM is mounting a long-term effort to rebuild Cadillac as a global rival to the big German luxury-car brands, and while the products are very close to parity with BMW (NASDAQOTH: BAMXF  ) and the others, Cadillac's image is still lagging.

Caldwell says that luxury buyers "want the latest thing", and notes that BMW's latest 3-Series is newer and fresher than the ATS, which was introduced in 2012 and is arguably last year's "latest thing". 

She also notes that BMW buyers don't really "cross-shop" the ATS, meaning that when they research alternatives, the ATS isn't generally on their list. 

According to Edmunds' data, while ATS buyers cross-shop the CTS, the 3-Series, Audi's A4 and Infinit's Q50, it doesn't really go the other way. With the exception of Q50 buyers, those who cross-shopped the ATS were generally looking at other American brands, Buicks and Lincolns.

The ATS's lease rate is in the same range as its German rivals, over 50%, she said -- an indication that it is at least drawing the same kinds of buyers to some extent.

Edmunds' data suggests that Cadillac XTS buyers tend to cross-shop Lincolns and Buicks, not BMWs. Source: General Motors Co.

But the XTS isn't: Its lease rate is under 30%, she said, and the percentage of cash buyers is very high -- something that generally indicates older customers, she said. Her sense that the XTS is mostly drawing old-school Cadillac brand loyalists.

Edmunds' data seems to support that. It suggests that the XTS is mostly cross-shopped against other Cadillacs, as well as the XTS's corporate siblings (the Buick Lacrosse and Chevy Impala), the Lincoln MKS, Hyundai's (NASDAQOTH: HYMTF  ) Genesis -- and to a limited extent, Mercedes-Benz's E-Class.

So is the Cadillac revival failing?
Edmunds' Caldwell says that it can take a long time to change buyers' perceptions of a brand, especially in the luxury space. It may take another generation or two of ATSs before it's really seen as a peer to the 3-Series by BMW loyalists, for instance.

She thinks that the ATS has "had a fairly decent start," though. And I agree: The strong early reviews gave it some credibility right way. And the new ATS Coupe that is set to join Cadillac's lineup later this year might give it a boost.

The new 2015 Cadillac ATS Coupe could help boost ATS sales a bit. Source: General Motors Co.

But I think the lesson here is that building a luxury brand takes a lot of time and effort. For years,  Cadillac's products were clearly inferior to the best from Germany. To its immense credit, GM has largely closed that gap. (In fact, with the new CTS, GM might be a little ahead of the Germans.) 

But that's just the first part of the battle. As hard as that was, the next task might be even harder: Elevating the brand to the Germans' level. Can GM do it? It may be years before we know.

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Read/Post Comments (5) | Recommend This Article (5)

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 June 15, 2014, at 6:35 PM, rommel3295 wrote:

    On the ATS--where is the 8 speed transmission? Or look at the gas mileage as compared to BMW--no comparison. The ad campaign touts "standard of the world." Must be some parallel universe... Who wants a car that is a favorite of pimps and old ladies?

  • Report this Comment On June 16, 2014, at 8:39 AM, Oliverboy wrote:

    Have a good friend who sells Cadillacs. And she says the stereotype isn't as much a stereotype as it is reality.

    When someone walks into their showroom they are sized up by the staff if they look like a Realtor, a hooker or a certain European gangster wannabe type, they figure they probably have a real shopper.

  • Report this Comment On June 16, 2014, at 11:00 AM, TMFMarlowe wrote:

    @rommel3295: GM's 8 speed will start rolling out next year. On paper it's a significantly better unit in some ways than the ZF transmissions BMW uses, should be interesting.

    But both of you are making my point beautifully. Cadillac's cars are a lot better, but the brand image needs work. How do they fix that? We'll find out if they can.

    Thanks for stopping by.

    John Rosevear

  • Report this Comment On June 16, 2014, at 2:23 PM, arno wrote:

    pricing is definitely a problem, why would you buy an XTS front wheel drive car when you can get an CTS with same powertrains and have a rear wheel drive or 4 wheel drive for a little less money, and as far as the ATS a well equipped one is almost as much as the CTS,pricing of all three too close

    when Cadillac come out with their larger sedan rear wheel drive with 6 or 8 cyl they will pick up sales and then they should drop the XTS

  • Report this Comment On June 17, 2014, at 5:33 PM, NoVaEarly wrote:

    Compare the CTS to a 535i and ATS to a 335i. The BMWs have more torque, are more fuel efficient, have more interior volume despite being shorter, look significantly better, and cost about the same. What sane person would buy either Cadillac?

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