Cadillac Needs to Slash Prices to Save Itself

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Cadillac’s results in the United States are so horrible that it cost the luxury brand’s longtime President Johan de Nysschen his job. Since the brand has little cachet in America and its ability to compete with the successful luxury brands is so weak, the General Motors Co. (NYSE: GM) unit’s only solution short term is to slash prices.

Cadillac sales were higher by 8.1% through the first three months of this year, but to a tiny 36,727. Two sport utility vehicles were critical to the improvement. The first was the hulking Escalade, the supersized model. Its sales rose 17.1% to 5,035. The Escalade can cost over $100,000. The other success is the XT5, a newish crossover. Its sales grew 10.3% in the first three months to 14,845. The XT5 is an entry-level model with a price as low as $40,095.

One of Cadillac’s problems is that it has too many sedans and coupes. Even much larger Mercedes, BMW, Audi and Lexus have suffered in this segment of the industry, as drivers have moved to SUVs and crossovers. However, among luxury cars buyers, who would pay for an ATS, CTS or CTS sedan or coupe when they can buy a CLA-Class, C-Class or E-Class Mercedes or a 2-Series, 3-Series, 5-Series or 6-Series BMW? Mercedes sold over 30,000 of its sedans in the first three months. Cadillac barely sold 9,000.

Cadillac price points are too close to those of its rivals. Its entry-level ATS has a base price of $35,495. The CLA Mercedes has a base price of $32,700. The BMW 2-Series has a base price of $34,950. Cadillac has only two other base car models. Each of its competitors has several, and at competitive price points.

Cadillac has the same problem with SUVs and crossovers, although its rivals have more models from which to choose.

Cadillac will try to expand its lineup to 11 vehicles, the first of which is the new XT4 crossover. But the moves come too late. Cadillac sales have so badly eroded that the addition of new vehicles is no longer a solution. The launch of its widely regarded ATS is an example, as is the launch of its CT6 flagship.

How do beaten down car brands sell more cars? Via incentives and price cuts. Cadillac cannot improve its fortunes through model additions. Most of the models will not come out for years and won’t draw enough interest to improve Cadillac’s future. Its future is as a less expensive, near-luxury brand with one or two expensive models. At least the strategy would give GM some hope it could steal modest business from its larger competitors.