Among GM’s Hopes for Cadillac, a Better Residual Value

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In just about every way, the 2014 Cadillac (NYSE:GM) CTS is shaping up to become one of General Motors’s most competitive cars to date. Improved drivetrains, dramatically re-engineered interiors, and a redesigned exterior all contribute to a formula that is a substantial departure from the Cadillacs of old.

The changes were spurred by a few key problems that General Motors’s luxury marque was facing. Chiefly, Cadillac needed to attract a far larger base of younger buyers, as its normally older clientele led to a brand-bruising that gave European and Japanese models an upper hand in the American luxury market.

That led to a second problem: Cadillac’s competitive edge in the domestic — and global — marketplace. For the past several decades, Cadillac has been seen as little more than the pricier, more comfortable editions of other General Motors models. German firms like Mercedes-Benz and BMW, however, have long been bona fide luxury cars from the ground up, and they were — and are — able to command a better price premium with buyers.

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Cadillac is hoping to hop on the luxury train, and the CTS is General Motors’s ticket to doing so. While the new sedan boasts all the improvements mentioned above, perhaps one of the most crucial changes is the new price tag the car will carry when it hits dealerships. The new CTS will start at $46,025, around $6,000 more than the generation its replacing.

This, though, presents problems of its own, according to Eric Lyman, the vice president of residual value solutions at ALG, a research company that monitors and projects vehicle values. Lyman told Automotive News that nameplates that get a significant price increase tend not to retain their resale values well.

However, the CTS apparently improved so much from the previous generation that its residual didn’t suffer despite the bigger prices, according to Lyman. But he’s not sure whether Cadillac will be able to command those prices without resorting to incentives that ultimately can damage the brand’s value, Automotive News reports.

ALG assigned an average forecasted residual of 48 percent after 36 months to the CTS, stronger than the 46 percent average of its luxury peers and better than the 41 percent residual on the outgoing 2013 CTS sedan.

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But official numbers are only a part of the story, Lyman notes. The real test will be if the consumers see the new car in the same light.

“We know how good the car is,” Lyman said to Automotive News. “The concern is that a CTS customer looking to trade in or whose lease is up might not know how much better the performance is. Will they see the value?”

Cadillac is turning to a popular industry tool to make the new price a bit more bearable: The company is still in the process of finalizing its leasing program. Cadillac spokesman David Caldwell told Automotive News that a higher residual means that the vehicle will be worth more when the lease is up, which allows the lender to set a lower monthly payment. This year, leases represent 40 to 50 percent of Cadillac’s sales, Caldwell said. Buyers can expect the CTS’s lease cost to “be competitive with the big players in the segment.”

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