Last month, residual forecaster ALG assigned 36-month resale values to the 2016 Cadillac CT6 and 2017 Cadillac XT5. Though the values are respectable, they lag key rivals. The lower residuals will make it costlier for Cadillac to offer leases comparable to those from BMW, Mercedes-Benz, Audi, Lexus, and other brand in the luxury space, where leasing makes up the majority of sales.
So the question now is, why are the residuals lower for both models? After all, both vehicles are very good in their competitive sets.
What it all comes down, according to Eric Lyman, vice president of industry insights at ALG, is the image of the Cadillac brand relative to its luxury rivals, rather than vehicle quality, refinement, technology, or driving dynamics.
This is an interesting circumstance, since Cadillac’s overall brand health and image have improved over the last several years. The brand has gained roughly $5,000 in average transaction prices to roughly $52,000 in 2015 thanks in part to lower incentives. But Lyman says that it will take some time for those successes to translate into increases in residual values.
“Residuals are heavily impacted by brand value,” Lyman says. “Cadillac is going head-to-head with some brands with very strong equity, like Mercedes-Benz and BMW.”
Lyman also refers to the rough launches of the ATS Sedan in 2012 and the third-generation CTS Sedan a year later. Both were afflicted with overproduction and prices that needed big incentives to sell vehicles, both instances that hurt residuals.
Cadillac President Johan de Nysschen has gone on record as saying that the residuals will improve over time. With the sales operations discipline, heaps of new product, and newfound brand management that Cadillac has been exhibiting, we wouldn’t bet agains the brand with the Wreath and Crest.
Comments
Brand building is a expensive and time consuming proposition. It will take years and huge investments in product and marketing.
GM has already committed the resources to get there and hopefully management has the patience.
I agree you can’t design or buy image you have to earn it with continued great and ever improving products. This does take time and investment.
Cadillac had a revolving door on management of chosen insiders and they toted the line to the board. Today we have outsiders with proper money and the autonomy to do what is needed to take them over that hump GM would never get them over in the past.
GM must keep them at reasonable volumes. Not discount the hell out of them and not put them into fleet use if at all possible unless it is to their benefit.
You want to see what discount Luxury is. Price a used Chrysler 300.
But the key here is not massive discounted volumes but higher priced premium cars that make 18%-25%. The CUV and SUV models will be the volume for what it is but the bottom line is these cars are easy profits and that is key.
The mistakes of the past is still a drag on Cadillac . The CT6 is the best car Cadillac has ever produced . The design is nice and from what Iv’e seen the quality of the build is as nice as anything they have built .
The marketing of both would help move that perception some . I actually think that Cadillac came out with to low a price . I know price doesn’t equal image , but the vehicles will be mass produced and that can hurt the residuals .
Sure the ATS and CTS came out over produced and over priced but the CT6 is the best we are going to see from Cadillac for atleast 3-4 more model years . Customers mental image of a Cadillac is not either one of those cars .
We need to face the fact that it just may take 10 to 15 years to get back on top . JDN has said as much .
It’s also about reliability, warranty, performance, and initial retail price.
Add in that a little birdie told me that Alfa Romeo may offer optional lifetime warranties on their upcoming sedans stateside… and you can start to see what I mean.
I feel ALG’s numbers on CT6 are off. But they also aren’t going to be any better than CTS.
How is reliability, warranty, performance and initial retail price a measure of projected residual values?
None of the matricies you mention except for possibly warranty are relevant and even that the Cadillac warranty is on par with others in the luxury segment.