Can the 2014 Cadillac CTS Succeed for GM?
The 2014 Cadillac CTS (Photo: General Motors)
This fall, General Motors is launching a redesigned 2014 Cadillac CTS, with the goal of retaking share in the U.S. luxury car market. While GM has been rolling out lots of new products in the U.S. recently, the CTS launch is one of the most important, because of the lofty margins luxury car makers can earn.
The new CTS has received rave reviews from almost everyone who has tested it. Obviously, that's a good first step for gaining sales momentum. However, to be a real success for GM, the 2014 Cadillac CTS will have to post sales gains of its own without overshadowing or cannibalizing its siblings: the ATS and the XTS.
CTS gets some competition
For much of 2011 and early 2012, the CTS was the only car in Cadillac's lineup. (Cadillac also sells the SRX crossover and the Escalade SUV.) As the older -- and larger -- DTS and STS sedans were phased out, Cadillac CTS sales jumped more than 20% in 2011 to exceed 55,000 .
However, in 2012, Cadillac expanded its model lineup. In the spring, it introduced the XTS full-size sedan, which was primarily targeted at traditional Cadillac buyers. It received decent reviews, but it was clearly not meant to compete with the European segment leaders .
On the other hand, the ATS compact sedan -- which went on sale last fall -- was designed with the BMW 3-Series in mind. Most reviewers thought Cadillac delivered a solid contender , although BMW really dominates the compact luxury vehicle segment.
The 2013 Cadillac ATS received good reviews (Photo: General Motors)
Since adding the ATS and XTS sedans to its lineup, Cadillac's U.S. sales have taken off. In fact, Cadillac has been the fastest-growing major brand in the U.S. auto industry this year .
However, the success of the new ATS and XTS sedans has been partially offset by big declines for the outgoing CTS model. CTS sales fell 14.6% in 2012 , and have plummeted another 35.1% year-to-date .
It's pretty clear that the poor sales performance of the outgoing CTS model over the last 2 years has been caused by cannibalization. Cadillac dealers are offering more choices, and so some customers who might have chosen a CTS are now buying an ATS or XTS instead.
If GM can get the three cars (leaving aside the new ELR plug-in hybrid) in the Cadillac lineup all growing simultaneously, it will dramatically narrow its sales gap with Mercedes, BMW, and Toyota Motor's Lexus . This means that the 2014 Cadillac CTS will need to have a high conquest rate. Growing CTS sales just by cannibalizing potential ATS or XTS sales would not help the brand as a whole.
The Mercedes-Benz E-Class leads the U.S. midsize luxury car segment (Photo: Mercedes-Benz USA)
The main competition for the 2014 Cadillac CTS will be the BMW 5-Series, Mercedes E-Class, and the Audi A6. Most reviewers have found that the new CTS is a much better alternative to these competitors than the outgoing CTS model. The biggest problem with the 2013 CTS was that it was a "tweener"; somewhat smaller and significantly cheaper than its midsize competitors. The 2014 Cadillac CTS will create a clearer distinction between the entry-level, compact ATS and the midsize CTS.
Cadillac has had considerable success in driving conquest sales for the new ATS. In fact, the conquest rate has run as high as 70%. However, that high conquest rate was driven in part by the fact that Cadillac had not been offering a compact car, and so there was no base of Cadillac owners to upgrade. In terms of total sales, the ATS is still far behind the competition.
Unlike the ATS, the 2014 Cadillac CTS isn't starting from zero. This would tend to dampen the conquest rate. Moreover, the European luxury automakers have dominated the segment and brand loyalty is high, so it could take a while to build momentum. On the flipside, the previous CTS was not really a 5-Series, E-Class, or A6 competitor, so the design changes should help Cadillac appeal to a wider swath of luxury car buyers.
Changing it up
Some current CTS owners may get sticker shock if they look at the new CTS; the base price has jumped a full $10,000 in just two model years! However, dealers may be able to steer those customers to the entry-level ATS, which is priced in the range the CTS used to occupy. (As a result, ATS sales could jump more than CTS sales next year.)
In a best-case scenario, the 2014 Cadillac CTS will more than make up for this shifting of customers within the Cadillac brand with new conquest customers. With the easier comps it's facing -- CTS sales are on pace to end this year more than 40% below the 2011 peak -- this should be achievable.
Cadillac is definitely going to be an even stronger brand with the new 2014 CTS than it was this year. It's exiting 2013 with a solid portfolio of cars that will give it a good chance to gain more ground on Mercedes, BMW, and Lexus in 2014.
Our stock of the year
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2013." To find out which stock it is and read our in-depth report, simply click here. It's free!
The article Can the 2014 Cadillac CTS Succeed for GM? originally appeared on Fool.com.
Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.