Cadillac's Problem Isn't The Germans, It's The Koreans

Illustration for article titled Cadillac's Problem Isn't The Germans, It's The Koreans

It's no secret that Cadillac, the self proclaimed "standard of the world," is struggling right now as a luxury automaker. Cadillac CEO Johan de Nysschen said it will cost $12 billion to turn the brand around in order to face the Germans, but are they going after the wrong targets?


Cadillac is about to debut the all new CT6 sedan in an attempt to once again make their car just as "desirable" as an Audi, BMW, or Mercedes. But it probably won't matter to your average luxury car buyer. Ask most folks who can actually afford a 5-Series or an E-Class what they think of Cadillac and you will find the main issue is not quality, or technology, or even's image. As of now the brand just doesn't convey the "status" of the European hardware. I realize that status is a shallow reason to select an automobile, but that is simply the reality of luxury car market.

Which brings me to the next problem, for those that can look past the badge Cadillac doesn't offer the "value" that the less-superficial shoppers are aiming for. I recently helped a client get a deal on a brand new 2015 Hyundai Genesis 3.8. I was shocked at how aggressive Hyundai is being with these cars in order to grab a foot-hold in the luxury market. Not only is the Genesis priced with a starting MSRP of $38,000 compared to the CTS that starts at $45,100 or the benchmark BMW 5-Series ($49,950), but Hyundai is also piling on the discounts to make a sale.

My customer wanted a base Genesis 3.8 without any packages, as he was very satisfied with all the standard equipment. Dealerships in California were willing to discount the sticker price down to a little over $34,000. So for about the price of a loaded V6 Camry you can have a rear-wheel-drive, luxury sedan with 311 horsepower (more than the 528, A6 2.0T, and CTS 2.0T), with standard navigation, heated seats, Bluetooth, and plenty of other goodies.

If my customer wanted to lease, the deal was even sweeter. After all the discounts and incentives were tallied up, the dealer offered a lease payment of $307/mo for 36 months and 10,000 miles per year, with only $1000 down. Compare that to Cadillac's offer of $449/mo for 36 months at 10,000 miles per year with $4349 down payment, and this is for a $45,ooo CTS. Now when you look at BMW's current lease special for a 528i with an MSRP of $52,700, the numbers are $499/mo for 36 months and 10,000 miles with a $4294 down payment. When you do the math it is hard to rationalize the CTS, regardless on how good it may be to drive.


Aside from the price difference, I was also quite impressed by the dealership experience from Hyundai. Not long ago I criticized them for sticking to "old ways" and made the point that you can't sell a $40k luxury car like a $15k compact. It seems that many Hyundai dealers woke up, and altered their approach to high-end sales. Almost every dealership I contacted was not only receptive, but gave me prompt responses with offers in writing. They understood that luxury car buyers especially don't want to "play games" and prefer quick sales with professional salespeople. The Hyundai dealers delivered, while even de Nysschen admits that Cadillac's dealer network could use some improvement.

Cadillac is facing a battle on two fronts. On the one hand, you have Hyundai and Kia offering less expensive alternatives for buyers that are less "badge conscious." On the other hand, Cadillac sees itself as on-par with the tier one players like Mercedes and BMW, but despite some really solid efforts just can't manage to steal customers away. Cadillac was once a luxury car to aspire to. There was a time when if you drove a Caddy, you were somebody (most likely a member of organized crime). Therefore, from a historical and philosophical standpoint it would be difficult for them to look "down-market" and fight the value brands like Hyundai and Kia head-on.


However, the "hearts and minds" battle that Cadillac has been desperately fighting, for the past decade or so, is not paying off. It won't matter how much power the CT6 can throw down or how light it is, to the average person just looks like a bigger CTS. It isn't going to save the brand. This war isn't won in the showrooms or the spec-sheet. People want to feel like they are getting more (or at least the same) for less. With Cadillac the perception is "less for the same cost." So either the brand needs to meet its value minded customers where they are, at lower price points, or their next project needs to be some kind hypnotizing device that alters the mindset of luxury car buyers.

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I wonder if Hyundai will ever achieve "status" as a luxury car maker like Lexus, or if it will forever wallow in the nebulous semi-luxury pool. At the very least people do still associate Cadillac with a luxury brand, if maybe an old fashioned luxury brand.