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Can the New Cadillac Catch Up to BMW?

Cadillac is expected to unveil the latest incarnation of its CTS Wednesday, a decade after first launching the midsize sedan whose sharp-creased looks—inspired by stealth bombers—were designed to attract younger buyers.

The CTS, to be introduced at the New York International Auto Show, has had some success in rejuvenating Cadillac's image. But it didn't revive slumping sales—and it failed to attract enough younger buyers from shifting toward foreign luxury cars. Once the top-selling luxury brand in the U.S., Cadillac finished 2012 in fifth place, behind BMW, Mercedes-Benz, Lexus and even Honda Motor Co.'s Acura.

But with the new CTS, Cadillac is again promising to use the $40,000-and-up car to challenge rivals such as BMW's 5 series and Daimler AG's Mercedes-Benz E-class for buyers.

The 2014 CTS will offer an eight-speed transmission—a first for General Motors Co.'s brands. The car will go from the heaviest to the lightest among its European rivals, giving it better fuel economy. Cadillac executives say the vehicle uses aluminum in front doors and bumpers to slim down to 3,616 pounds, about 250 pounds less than the last design.

Getty Images The first 2013 Cadillac ATS available for retail sale is prepared to roll off the assembly line at the GM in July.

"The CTS was the vehicle that began the Cadillac renaissance," said Robert Ferguson, Cadillac's global brand chief. The new model "is a cornerstone vehicle for us and will keep the momentum going."

But in some respects it is the same old Cadillac facing the same dilemma. The average age of a Cadillac owner is 65 years old, compared with 49 years for BMW and 48 years for Audi, according to researcher StrategicVision. The new-to-GM eight-speed transmission has been available in rival vehicles for more than a year.

The New York Auto Show is about to kick off. WSJ's Eyes on the Road columnist Joe White has a preview on Lunch Break.

After a lot of ups and downs over the years, the brand is focusing on a three-sedan portfolio—the ATS, CTS and XTS. That compares with the four different body styles in the BMW 5 series alone. GM says it plans to introduce six new or refreshed Cadillacs over the next four years and insist the coming CTS won't lag the size, length and electronic bling of its German rivals.

A strong debut for the new model is critical for GM. The company is pinning its future on the global sales of two brands: Cadillac and Chevrolet. GM needs Cadillac to crack the luxury barrier and boost its presence in markets such as China, Russia and perhaps Brazil if it hopes to generate the profit it needs for the brand's long-term survival.

That the new CTS a decade later faces the same, unaccomplished mission of regaining market and mind share from German luxury brands shows how much its rivals have gained. Audi, BMW and Mercedes are introducing a variety of new models in the U.S. and China this year to broaden their appeal to new and younger buyers.

Despite repeated revival promises, Cadillac's U.S. market share has remained relatively unchanged over the past 10 years, bouncing between a high of 1.35% in 2005 to 1.05% at the end of 2012.

Since the launch of the first generation CTS in 2002, Cadillac has sought to hammer a message that its cars are no longer the soft-riding, oversize boulevardiers that wealthy members of the World War II generation piloted to summer hotels in the Catskills or cabins in Northern Michigan.

It strove to recast the car as a high-performance machine, showing images of the CTS roaring around Germany's Nürburgring race circuit—a testing ground the German brands use to fine-tune the handling of their vehicles.

To launch last year's new sedan, the 2013 ATS, Cadillac commissioned a series of television spots showing a pair of young driving enthusiasts flogging the car along twisty roads in exotic locations from China to the tip of South America.

Today, GM again is considering changing Cadillac's advertising agency. If it does, it would be the fifth such switch since 2007.

Cadillac 2014 CTS, above, would chase BMW's 5 series and Mercedes E-class.

"We owe it to ourselves to take a step back," Cadillac U.S. marketing chief Don Butler said. "We are looking at everything go on in the brand and asking ourselves should it be structured differently.

In part, that is because the about $38,000 and up ATS has gotten off to a slow start. U.S. dealers had a hefty 106 days' supply of the cars as of the end of February. By contrast, BMW's overall stock of unsold cars in the U.S. amounted to just 39 days' supply.

R.L. Polk & Co. automotive analyst Tom Libby said the new Cadillacs represent "a huge step forward for them." But at the same time, he said, BMW, Audi and Mercedes-Benz are escalating their assaults on the U.S. market with new models—including lower-priced vehicles aimed at picking off younger, affluent buyers before they ever consider Cadillac.

"They are also expanding their product portfolio downward which only increases the pressure," Mr. Libby said.

Mercedes-Benz, for example, will use the New York show to debut its CLA 45 AMG—a high performance version of the compact four-door it highlighted during the 2013 Super Bowl. The CLA will start under $30,000. Mercedes says the AMG version can reach 60 miles an hour time from a standing start in under 5 seconds at a price of about $50,000.

"Over the next seven years we are launching 30 new or refreshed cars, which averages out to about one new car per quarter," Mercedes-Benz spokesman Christian Bokich said. "We continue to invest in our product portfolio to meet what we see as the future demands of luxury customers."

Those new vehicles and others could make it tough for Cadillac to hang on to its rank in the U.S. Hot on Cadillac's heels is Volkswagen AG's Audi brand, which has been steadily increasing market share since 2004 when it had 0.44% of the U.S. market. Audi had a share of 0.96% at the end of 2012, and the brand is launching more models—including a compact A3 sedan that will be shown at the New York auto show.

To lead the latest relaunch of Cadillac, GM CEO Dan Akerson reached outside the company's automotive marketing ranks and named Mr. Ferguson, GM's Washington lobbyist and a former AT&T Inc. executive as Cadillac's global brand head.

Mr. Ferguson said he is confident Cadillac new lineup can take on the Germans by more directly positioning its cars in the same size and price categories of the German brands. GM says the ATS pricing is akin to BMW's 3 series and Audi's A4.

With the new sedan, "We are going to ride the CTS to get Cadillac to sales numbers it has never posted," Mr. Ferguson said. Cadillacs including the ATS and compact SRX sport utility also will help Cadillac in growth markets such as Brazil, Russia and China, he said.

Early sales of the ATS in the U.S. isn't a fair indicator of the brand's potential, Mr. Ferguson said, because they reflect a failure to supply enough all-wheel-drive models in a segment where roughly half the cars sell with the feature.

Now, Mr. Ferguson said, 70% of those customers buying a new ATS sedan have never previously owned a Cadillac.

Data from Edmunds.com, the car shopping website, suggests that the ATS is getting some looks from people shopping German brands. In February, about 4.9% of shoppers who looked at a BMW 3 series also looked at the ATS, up from 3.3% in December 2012.

But there was more cross-shopping traffic between the ATS and the Cadillac CTS. Of those who looked at a CTS, 26% also looked at the ATS. Of course, some things never change: Edmunds analyst Jessica Caldwell said the top state for ATS purchases is Michigan, GM's home state.

Write to Jeff Bennett at jeff.bennett@dowjones.com and Joseph B. White at joseph.white@wsj.com

A version of this article appeared March 27, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: New Cadillac, Old Dilemma.

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China Cosco Posts Loss

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China Eastern Turns to Europeans

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Comcast Scores Court Victory

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Ford India Ads Lead to Firings

A top Ford Motor Co. executive formally apologized Wednesday while the auto maker's Indian advertising agency unit fired an undisclosed number of workers following a series of controversial proposed advertisements to promote Ford's Figo subcompact car.

"It was totally inappropriate, it is not acceptable and swift action has been taken," Ford global marketing chief Jim Farley said at the start of his keynote speech at the New York International Auto Show. He apologized for the ads and said the company is updating its review process.

Mr. Farley's apology come amid the growing controversy in India over proposed ads that depicted ...

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Pinnacle Foods IPO to Test Investor Appetite

NEW YORK–Thursday's initial public offering for frozen foods purveyor Pinnacle Foods Inc. is setting up to be a test of how much investors are willing to pay for a company that offers a hefty dividend but comes saddled with debt and limited prospects for growth.

The maker of Van de Kamp's fish sticks and Lender's frozen bagels is slated to set a price for its IPO late Wednesday, a deal that is likely to be the year's third-largest IPO. Shares are expected to fetch between $18 and $20 per share and could raise as much as $580 million.

Pinnacle, which is backed by Blackstone Group LP, is the latest in a string of deals brought to market this year by sponsors including private-equity shops or venture capital firms. Blackstone bought Parsippany, N.J.-based Pinnacle for $2.16 billion in 2007. It added Birds Eye Foods Inc. in 2009 with a $1.3 billion deal.

Pinnacle said in its prospectus that it's targeting an 18-cent quarterly dividend, which would imply a 3.8% annual yield based on the midpoint offer price. That compares with a 2.2% dividend yield on stocks in the Standard & Poor's 500-stock index. With interest rates at rock bottom, high-dividend paying stocks have been commanding a premium from investors.

"I would be surprised if it doesn't price at the top end of the price range or above that," said Josef Schuster, founder of IPOX Schuster LLC, an IPO research-and-investment firm based in Chicago. "It's a stable business and has good brand value. I think investors are also looking at it for the dividend yield," he said.

Mr. Schuster's fund, the $67 million First Trust U.S. IPO Index exchange-traded fund, doesn't participate in first-day IPO trading, but said he is looking hard at adding shares in the coming weeks.

Another potential positive for the deal is that investors have been taking a shine to IPOs brought to market by financial sponsors such as Blackstone. Thirteen such deals have generated an average first-day gain of 20%, compared with a 14% first-day pop for all initial offerings, according to Ipreo, a market intelligence firm.

On the potential negative side of the ledger, Pinnacle's brands–which also include Vlasic pickles and Celeste pizza–are widely known, but its sales have mostly been flat. The company booked $2.5 billion in sales in the 2012, up 0.4% from the year earlier.

Then there's the debt: As of the end of last year, its total debt stood at $2.1 billion, or about five times 2012's adjusted earnings before interest, taxes, depreciation and amortization.

But leverage hasn't been much problem for recent IPOs. With the Federal Reserve expected to keep interest rates low, investors have relegated concerns about debt loads to the back burner.

For example, Realogy Holdings Corp., a real-estate services firm that owns and franchises brokerages including Century 21 and Coldwell Banker, had net leverage of more than seven times its forward Ebita when it went public in October. That deal, which was backed by private-equity firm Apollo Global Management LLC, fetched a price at the high end of its prospective range and shares are up more than 80% since their IPO.

In Realogy's case, investors jumped at the chance to play an IPO tied to a broader recovery in the housing market, observers say. Stocks like plywood maker Boise Cascade Co. and Tri Pointe Homes LLC have seen strong stock gains after their IPOs this year.

Analysts also note the consumer-staples sector generally tends to be more supportive of debt loads because sales, even if uninspiring, are usually relatively stable.

"The food industry is an example of an industry with relatively low operating risk. So food companies, whether it's Heinz, or Pinnacle Foods, can support higher debt ratios than companies in more cyclical industries," said Jay Ritter, a finance professor at the University of Florida who tracks IPOs.

Pinnacle will list Thursday on the New York Stock Exchange under the ticker PF and would carry a market value of $2.2 billion at the high point of the prospective price range.

Write to Chris Dieterich at chris.dieterich@dowjones.com or Matt Jarzemsky at matt.jarzemsky@dowjones.com

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