GM Plans Cadillac Production Cut
Due to Big Backlog, Plant
That Builds Newest Models
Will Be Shut Down for Week
By LEE HAWKINS JR.
Staff Reporter of THE WALL STREET JOURNAL
February 24, 2005

DETROIT -- The Cadillac comeback may have hit its first big pothole.

With a more-than-three-months backlog of Cadillac's newest models piling up unsold on dealer lots, General Motors Corp. plans to cut production for the first time at a three-year-old Michigan plant built solely to produce a new generation of Cadillac cars and sport-utility vehicles, including the Cadillac CTS and STS sedans and the SRX crossover SUV.

The move follows indications of slowing sales. Overall, including fleet sales to commercial and rental-car companies, GM sold 14,065 Cadillac cars and trucks in January, down 4.7% from a year ago, according to Autodata Corp. At the end of January GM was carrying a 115-day supply of Cadillac vehicles. The normal days'-supply level is about 60.

The weeklong shutdown, planned for the end of this month at the Lansing Grand River factory near Lansing, Mich., marks a setback for GM's high-profile effort to rehabilitate the Cadillac brand. Sales rebounded during the past three years as rappers and professional athletes adopted the big Escalade SUV as their ride of choice, and consumers who had ignored the brand's soft-riding cars took notice of the sharp-creased new CTS sedan. Last year, Cadillac sales rose 8.4% and surpassed DaimlerChrysler AG's Mercedes-Benz to claim the No. 3 spot among luxury-car brands in the U.S.



2005 Cadillac STS


Top GM executives held up Cadillac as an example of how the No. 1 auto maker could restore momentum with new models. GM Vice Chairman for Product Development Robert Lutz and other top executives have said that the Cadillac turnaround would be adapted to other ailing brands, such as Buick and Pontiac.

Paul Ballew, GM's executive director for market and industry analysis, said the company's data for Cadillac's retail sales for cars and trucks, excluding fleet sales, showed a 9% rise last month compared with a year ago, while Cadillac retail car sales were up 13%. "We had a good January and we are having a strong February," he said. "All indicators are that we are going to have a good year."

Mr. Ballew said GM has worked to reduce its fleet sales at Cadillac. "We've been pulling down fleet volume at Cadillac over the last few years, and Cadillac retail sales are very good."

But GM's production of Cadillac vehicles has for now significantly overshot demand, which poses risks to the brand's effort to improve resale values -- critical in the luxury market. Since many luxury-car consumers lease, the higher the projected resale, or residual, value of a car, the better the deal for the consumer.

"We welcome the production-cut decision,"said Raj Sundaram, president of Automotive Lease Guide. "If we are talking three months from now and they have these inventory levels, there could be a big risk on the residuals." But he added, "We like to see how companies respond to the high inventories."

GM has a 133 days' supply of CTS sedans, and a 138 days' supply of the new, larger STS model intended to compete with European stalwarts such as the BMW AG's 5 Series or Mercedes-Benz E Class sedans. Stocks of the Escalade were at 83 days' supply at the end of January, down from 106 days a year ago but still high. GM has built up a 129 days' stock of the SRX crossover wagon.

One GM dealer whose dealership has sold Cadillacs since 1928 said Cadillac sales and inventories should improve. "I just think they built an awful lot of vehicles in the fourth quarter. But I think when the spring gets here, things will break loose," said Lynn Thompson, co-owner of Thompson Pontiac-GMC-Cadillac-Saab, in Springfield, Mo., and co-chairman of GM's National Dealer Council.

....

Cadillac increased its incentives to $4,755 in January from $4,690 in December, but the company has been trying to keep incentives to a minimum. "GM's incentives are strong. They may not be where we'd like it to be, but they're strong," Mr. Thompson said. "If the dealers aren't taking vehicles, they are going to have to build them and sell them or shut the plant down. This isn't the first time the plant has been shut down."

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