Cadillac Driving to Disrupt BMW-Mercedes U.S. Luxury Grip

General Motors Co. (GM) took to a Georgia racetrack to show that its first compact Cadillac in a quarter- century drives as well as a BMW 3 Series. The trickier part will be getting it to sell as well.

While the horsepower of the Cadillac ATS is important, its lease payment ultimately may determine the success of the new model. Bayerische Motoren Werke AG (BMW)’s BMW brand and Daimler AG (DAI)’s Mercedes-Benz have fueled much of their growth with monthly lease deals on the 3 Series and C-Class that have, in some cases, dipped as low as $299 a month. High resale values help, too.

“If the price is similar to the Europeans and the monthly payment similar, it will be a challenge to reach their volumes,” Tom Libby, lead North American analyst for R.L. Polk & Co., said in a telephone interview. “Those two brands and those two models, particularly the 3 Series, have extraordinary equity in the mind of the luxury consumer.”

GM won’t chase BMW and Mercedes into a price war, Don Butler, Cadillac vice president for marketing, said last week during an interview in an ATS parked alongside the Atlanta Motorsports Park racetrack, where GM showed the new car to reviewers.

“We need to show that we are in the game, in the ballpark, but I’m not going to be as successful as I need to be in terms of building the brand if it’s kind of distressed from the start, and if it’s almost bribing people to come give me an opportunity,” Butler said. “Where do you go from there?”

The automaker fell 0.3 percent to $19.30 at the close in New York.

Global Brand

GM, based in Detroit, is counting on the ATS to increase Cadillac sales in the U.S. and China as part of Chief Executive Officer Dan Akerson’s push to make the brand more global. He wants to boost luxury brand sales to offset declines in high- margin trucks.

The ATS and XTS full-size sedan introduced earlier this year are the first new Cadillac offerings since 2009’s SRX sport-utility vehicle and 2010’s coupe version of the CTS sedan. They are the first nameplates added to the brand’s lineup since the SRX was introduced in 2003.

Cadillac was once the epitome of luxury: The first brand to mass-produce a V-8 engine in 1915, it was known for big, comfortable cars and later for its hulking Escalade SUV. In 1988, it stopped making its last compact, the Cimarron, which Time magazine called one of the 50 worst cars of all time.

Cadillac hasn’t led in U.S. luxury sales since 1997, Libby said, and last year sold only about 60 percent as many vehicles as BMW and Mercedes-Benz in the U.S.

GM begins a TV ad campaign for the ATS this week during the opening night of the Olympics broadcast on NBC. The vehicle starts arriving in showrooms in August and September.

The entry-level version of the ATS can go from zero to 60 mph (97 kph) in 7.5 seconds and is rated to get a combined city and highway fuel economy of 26 mpg, the company said.

Competitive Prices

The sedan starts at $33,095, excluding destination costs, and will have monthly lease payments around $389 to $399, Butler said. The 3 Series begins at $36,500 with monthly lease prices advertised as low as $399 per month and the C-Class starts at $34,800 with lease offers as low as $369 per month, according to BMW and Mercedes websites last week.

Pricing of the ATS reaches about $49,000 for the premium model that includes a 3.6-liter, V-6 engine and all-wheel drive, and reaches 60 mph in 5.6 seconds, the company said. Options for the ATS include safety features such as seats that vibrate when the car unintentionally departs its lane.

GM has picked a good price for the ATS for now, said Libby, the analyst. “It’s much easier to go down than to go up,” he said in an e-mail. GM executives “will see how sales are at the starting price and monthly payment, and then adjust.”

Lease Payments

Monthly lease payments play an important part in selling compact luxury cars to entry-level customers, said Jesse Toprak, an industry analyst in Santa Monica, California, with TrueCar.com, a website that tracks auto sales. More than 60 percent of BMW and Mercedes sales in the U.S. are lease deals, he said.

About 36 percent of Cadillac’s sales are leases, Butler said. He said he expects leases to make up 40 to 50 percent of ATS sales.

“If you look at how much car people are able to lease, which is just a simple ratio of dividing the MSRP by the lease payments, you see that typically the German brands offer much greater value than Cadillac,” Toprak said. “If Cadillac wants any chance of convincing the import buyers into taking a look at the new ATS, they just simply have to be more aggressive when it comes to leasing.”

Incentive Spending

BWM and Mercedes have increased spending on incentives this year as they’ve battled for the year’s U.S. luxury sales crown. BMW, based in Munich, increased incentive spending per car 11 percent to $4,016 during the first half of the year, according to researcher Autodata Corp. Mercedes promotion spending on its cars rose 18 percent to $4,005 during the same period. Both exceeded the $2,747 on average GM spent on its cars.

Through six months, Stuttgart, Germany-based Mercedes U.S. sales rose 16 percent to 128,595, to lead BMW by 2,091. BMW, which overtook Lexus last year to become the top-selling luxury brand in the U.S., sold 126,504 during the first half, an 11 percent gain. BMW beat Mercedes last year by 2,715 deliveries.

The totals don’t include Daimler’s Sprinter vans and Smart cars and BMW’s Mini brand, which aren’t luxury vehicles.

U.S. sales of 3 Series sedans rose 15 percent during the first half to 33,991 while C-Class sedan deliveries increased 10 percent to 33,121, Woodcliff Lake, New Jersey-based Autodata said.

Sales Outlook

GM wants to sell more than 50,000 of the ATS annually, Butler said. IHS Automotive has estimated that Cadillac will sell 15,000 of the ATS this year and 60,000 next year, including a coupe version that it expects in 2013.

Near Atlanta last week, Aaron Bragman, an industry analyst for IHS Automotive, took a test run around the two-mile course in the ATS.

“The target being obviously the BMW 3 Series and I think they’ve easily created a viable competitor for it,” Bragman said. “Driving wise, I think it’s extremely comparable. It feels very European. It feels very German to me in terms of the way it drives.”

To contact the reporter on this story: Tim Higgins in Atlanta at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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