U.S. Markets open in 1 hr 13 mins

GM Rolls Out $10,000 Discount on Escalade to Fend Off Navigator

Keith Naughton, David Welch
The General Motors Co. (GM) Cadillac 2015 Escalade sports utility vehicle (SUV) is displayed during the 2014 North American International Auto Show (NAIAS) in Detroit, Michigan, U.S., on Monday, Jan. 13, 2014. General Motors Co.'s Chevrolet brand swept the North American Car and Truck of the Year awards at the Detroit auto show today with its Corvette Stingray sports car and Silverado pickup. Photographer: Andrew Harrer/Bloomberg

In Cadillac and Lincoln showrooms, the battle of the behemoths is on.

General Motors Co. is stepping up its defense of the Escalade SUV, a cash cow for Cadillac and the company, by offering $10,000 discounts to some current customers to keep them from straying to Ford Motor Co.’s hot-selling new Lincoln Navigator.

The nationwide deal applies to lessees of all 2016 model Escalades, and owners are being offered a $7,500 discount. The promotion runs through May 31, according to a memo GM sent dealers that was obtained by Bloomberg News. Jim Cain, a GM spokesman, confirmed its authenticity, calling it “an exclusive private offer” designed to “keep people in the family.”

More from Bloomberg.com: Warship Ruse and New Stealth Missiles: How the U.S. and Allies Attacked Syria

GM has ample reason to keep Escalade buyers coming back. The big sport utility vehicle generates outsize profit from relatively modest sales: Morgan Stanley analyst Adam Jonas has estimated it produces about $1 billion in annual profit, contributing to a $2 billion earnings advantage GM has across all its large SUVs over Ford.

“GM is trying to keep Escalade buyers out of Navigators, for sure,” Jeff Schuster, an analyst at LMC Automotive, said by phone. “You’ve got a fresh Navigator and you’ve got an Escalade that is not new and is starting to age.”

More from Bloomberg.com: How 105 Missiles Show Assad’s Future Is Safe

Gaining Ground

While the Escalade outsells the Navigator, Lincoln’s contender is quickly gaining ground. Navigator deliveries have risen 63 percent this year. Last month, each one of the new SUVs lasted on dealer lots an average of just 10 days. The high-end Black Label Navigators -- which can top $100,000 -- spent only about seven days in showrooms, according to the company.

The average price paid in March for Navigators ballooned by about $25,600 from a year earlier to $82,500, roughly on par with the Escalade, Mark LaNeve, Ford’s U.S. sales chief, said during an April 3 monthly sales conference call.

More from Bloomberg.com: Former First Lady Barbara Bush in Failing Health, Spokesman Says

The segment’s hefty prices give GM more room to maneuver when it comes to incentives. Analysts estimate that profit per vehicle can top $20,000 on the Escalade.

Still Making Money

“GM is willing to forgo a little profit to keep loyalty within the brand, but they’re still making money,” Schuster said. “The new Navigator has sent a signal to Cadillac that they need to be in front of this and be aggressive.”

This is at least the second significant deal GM has dangled to blunt the impact from the new Navigator. In November, GM offered Lincoln owners a $5,000 incentive to trade in any model since 1999 for a new Escalade.

The moves seem to be working: Escalade sales are up this year, and average transaction prices have risen slightly, according to Cain, the GM spokesman. Big luxury SUVs that are seeing deliveries declines through March include the Mercedes-Benz GLS, Land Rover Range Rover and Lexus LX.

“This is a particular battle that GM doesn’t want to lose ground in,” LMC’s Schuster said. “It speaks to the importance of the Escalade.”

More from Bloomberg.com

Read GM Rolls Out $10,000 Discount on Escalade to Fend Off Navigator on bloomberg.com