Can America Build Luxury Cars?

After all but ceding the luxury auto segment to the Germans and Japanese, Detroit is trying to compete again

by Matt Vella

For years, America built some of the world's most coveted luxury cars. Between the wars, marques like Packard and Duesenberg were driven by millionaires and movie stars. But beginning in the 1970s, increasing competition forced Detroit to concentrate on more high-volume cars, all but ceding the luxury segment to rivals in Japan and Germany. By the 1990s, Cadillac and Lincoln had become a punch line, the car of choice for retirees and funeral homes. It looked as though America would never again produce a world-class luxury car.

That may now have changed.

At January's North American International Auto Show in Detroit, Cadillac debuted its new 2008 CTS sedan. Coming on the heels of several successful Caddy designs in recent years, most notably its Escalade sport-utility vehicle, Cadillac has seen a resurgence in sales and consumer appeal. The company has finally been able to once again attract a younger, more affluent audience.

From the exterior, these cars looked sleek, and under the hood they provided the power that many of their buyers craved. But they fell down when it came to the interior. Crafted mainly from the General Motors (GM) plastic parts bin, they couldn't hold a candle to Lexus, Audi, and BMW. If only, the thinking went, GM could get its act to together and make a better interior, Cadillac could once again truly compete in the luxury segment.

Interior Flourishes

And now it has. The new CTS will bring to market the fruits of a long-term, company-wide initiative to wrestle control of the interior away from the accountants and return it to the design department where it belongs. The cabin features sweeping surfaces, with integrated buttons and knobs that look more custom-made. Soft, ambient lighting is piped along the doors. Seats also sport a minimalist, jewel-like chevron insignia. "This second pass allows us to get into the really fine details," says Dave Caldwell, a spokesman for the company.

The car also features a "cut-and-sew" process in which coverings on the instrument panel, center console, and door trim are cut, sewn, and wrapped by hand, allowing for flourishes such as French stitching. It's the kind of attention to interior quality that recent GM products have so badly needed—especially given the competition from Lexus, Infiniti, and Acura.

Such process and detail adds cost, admits Dave Rand, GM's executive director for interior design, but he and other executives believe the improvements in quality are worth it. "All the manufacturers know the new game in town is interiors," says Rand. "The exterior is still the hook, but how you live with the product, well, that's all on the inside."

"Cadillac Renaissance"

Much is riding on the new CTS, the second generation of Cadillac's entry-level, rear-wheel-drive sedan. The CTS had been one of Cadillac's strongest sellers, after the company's iconic Escalade, and was its best-seller in 2005. In 2006, though, in need of a redesign, it dropped behind the updated DTS full-size sedan, with sales of 54,846 cars. The new CTS, a 2008 model, will hit dealer showrooms sometime this fall and cost around $30,000.

At the car's January debut, Robert Lutz, GM vice-chairman and head of global product development, said: "This new CTS is a much more capable and attractive car. I see this as phase two of the Cadillac renaissance." Auto industry analysts, for their part, gave the car high marks for its evocative front grille and softened but still sharp body lines—both derived from the striking Cadillac Sixteen concept from 2003.

But competition from BMW's 3 series, as well as all-new versions of the Lexus IS and Mercedes C-Class sedans, will be tough. In 2006, BMW sold more than 106,000 3-series cars in the U.S. alone, and the C-Class is Mercedes' best-selling model.