Cadillac Buyers Balk at $500 a Month When They Can Lease a BMW

Cadillac CTS
Cadillac CTS Vsport. Photographer: Richard Prince/Cadillac via Bloomberg

Cadillac President Johan de Nysschen got an earful from a few dealers at a recent sit-down in New York. With sales sputtering, they wanted him to offer rebates and cheap leases to move the metal.

De Nysschen refused to go along. He’s loath to cheapen the image of a luxury brand he’s trying to turn around and that remains an afterthought for many wealthy Americans. On the other hand, the former Audi and Infiniti executive understands dealers’ pain. Cadillac sales fell 1.5 percent in the first half of the year when the luxury segment is booming. Sales at Audi, BMW, Lexus and Mercedes-Benz are all up at least 7 percent.

“We have to do what’s right for the brand,” de Nysschen said in an interview. “Our dealers also need customers.”

General Motors Co. recruited de Nysschen, 55, and gave him a free hand to restore Cadillac, allowing him to run it from New York and committing $12 billion for new vehicles. Right now, Cadillac has only one crossover SUV, a segment that’s currently in vogue. And the CTS sedan and ATS coupe are both struggling against more prestigious competitors; Cadillac sedan sales fell 20 percent in the first half and the only reason overall sales didn’t fall further is because the Escalade and SRX sport utility vehicles are selling relatively briskly.

July Sales

Cadillac is a microcosm of GM. When the industry reports July sales Monday, the company will probably show one of the smallest increases in light-vehicle sales of major automakers, according to a survey of analysts. This in a U.S. auto market expected to have maintained its momentum this month, putting annual sales on track to reach the best showing in a decade. Like Cadillac, all of GM is trying to ease off profit-sapping practices like rebates and sales of cheap cars to rental fleets.

GM is counting on Cadillac to drive profits in the next decade because tightening fuel-economy standards will boost production costs and whack margins for trucks, currently the automaker’s chief source of earnings.

One of the key points of contention between some dealers and de Nysschen is that the CTS has gotten much more expensive, said John Bruno, general manager of Potamkin Cadillac in Manhattan. A few years ago customers could lease the car, which is the size of a BMW 5 Series, for less than $400 a month. Those people are coming back and finding CTS leases now run more than $500 a month. Dealers complain that getting people into a smaller ATS is difficult, he said, and want incentives to make the cars more affordable.

Bruno said his dealership is doing fine because the Escalade and SRX have sold well in New York. He’s willing to stick with de Nysschen’s plan.

Maintaining Discipline

Back in January, de Nysschen cut prices by $2,000 or more on the CTS and added $2,200 worth of options for free. Since then, he has sought to maintain discipline -- giving dealers fewer cars and asking them to charge more for them.

It’s starting to work. Cadillac’s retail transaction prices rose 8 percent in the first half of the year, the second-biggest increase among premium brands, behind only Land Rover, according to Kevin Tynan, an analyst with Bloomberg Intelligence. Cadillacs now sell for about 7 percent less than a comparable BMW, said Eric Lyman, vice president of industry insights for TrueCar Inc. A year ago, BMWs commanded 14 percent more than Caddies. It’s a tradeoff, Lyman said.

“They’re selling fewer vehicles, but getting better prices,” he said. “If they maintain discipline it may work out, but they’ll suffer lower sales in the meantime.”

Will Churchill, who owns Frank Kent Cadillac in Fort Worth, Texas, said de Nysschen’s plan is smart in the long run. He also said that some dealers will be tough to persuade because they’ve been selling cars based on price for a long time.

De Nysschen knows his brand isn’t BMW. When the much-heralded CT6 arrives in January, the 7 Series competitor will be priced like a loaded 5 Series.

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