General Motors (NYSE:GM) made big headlines on Tuesday, when it announced that it's moving the headquarters of its Cadillac luxury brand out of Detroit to New York City. The move is one more step in a major effort to recast Cadillac as a leading global luxury-car brand on par with the German luxury leaders: BMW (NASDAQOTH:BAMXF), Daimler's (NASDAQOTH:DDAIF) Mercedes-Benz, and VW Group's (NASDAQOTH:VLKAY) Audi.
But is that major effort working? On one hand, Cadillac's products have made huge strides. Its CTS sedan, all new last fall, won Motor Trend's coveted Car of the Year award -- and it's winning comparison tests against the likes of BMW's 5-Series and Mercedes' E-Class.
But the new Cadillacs aren't winning buyers -- at least not as many as GM would like. While Cadillac sales were up 22% in 2013, the brand's sales have fallen this year -- down 4% through August.
The problem? The new Cadillacs are more expensive -- in some cases, a lot more expensive. GM priced the new 2014 CTS competitively with its German rivals. That makes sense in terms of features and driving experience, but compared to the 2013 CTS, the outgoing model, it's a huge price increase. Some versions of the 2014 CTS are as much as $16,000 more expensive than comparable versions of the old model, the 2013 CTS sedan.
That has given Cadillac's longtime customers pause. It's also causing concern among Cadillac dealers, who want to retain those loyal customers. But as The Motley Fool's John Rosevear and Rex Moore explain in this video, there's a method to GM's seeming madness here. The dramatic price increases are part of its long-term strategy to catch the German luxury brands -- and while it seems surprising, GM's leadership might actually be OK with a drop in Cadillac sales, at least for the time being.
John Rosevear owns shares of General Motors. Rex Moore has no position in any stocks mentioned. The Motley Fool recommends BMW, General Motors, and Nike and owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.