GM Must Fashion Another Cadillac Renaissance
The division General Motors executives have long called "the tip of the spear" is about to undergo its second makeover in less than a decade. Fresh from bankruptcy, GM badly needs Caddy to hit. It has a slew of coming new models that take aim at the likes of BMW (BMWG.DE). But some of them—such as the new SRX crossover SUV and a small sedan—will challenge Cadillac's ability to sell vehicles other than big luxury cruisers and SUVs.
With its fourth new manager in five years, Cadillac has yet to figure out a new marketing message to champion its new models and recapture its momentum. "It's time for a new chapter," says newly minted Cadillac General Manager Bryan Nesbitt. "There's still the perception tied to those old Fleetwoods and DeVilles. So there's a fight to build awareness."
The Loss of GMAC Crippled Cadillac Cadillac's resurgence is vital to GM. Five years ago, the brand was one of the company's few success stories. After years of indifferent models and mercurial marketing, the division had put its stodgy image behind it. The brash, hulking Escalade had become the hip-hop SUV of choice, and the edgy styling of the CTS sedan attracted people who wouldn't previously have been seen dead in a Caddy. In 2004, Cadillac outsold Mercedes (DAI) in the U.S. and was closing in on Lexus and BMW. Until 2007, the brand could be counted on for upwards of $2.5 billion in annual operating profits, which covered losses from weaker brands. Then GM ran into trouble and the former regime yanked money for new products and marketing in 2005, leaving Cadillac with only the new CTS for the past couple of years.
It doesn't help that since losing control of GMAC, formerly its in-house lender, GM has been out of the leasing game—a knee-capper for a luxury brand. Cadillac is just starting to get back into leasing with newer models such as the CTS and SRX. GM's bankruptcy also has given the brand an uninviting stench. Cadillac is expected to sell 130,000 cars this year, vs. 235,000 in 2005. In a survey by Edmunds.com, only 2.1% of buyers say they would consider buying a Cadillac, down from 4.3% in January 2008.
That's not to say that GM can't turn Cadillac around. "It's still a good brand," says Jim O'Donnell, chairman and CEO of BMW (U.S.). "They're on a knife edge. They could fall off a cliff or be successful."
Can Cadillac Sell a Small Sedan? Back in the day, Cadillac was known not just for luxury and style but for technology, too. It pioneered the automatic transmission, a cabin thermostat, and heated seats. New division chief Nesbitt wants to rekindle that innovative reputation. But a hybrid version of the Escalade hasn't moved the needle. Nesbitt wants to intensify the hybrid's marketing, plugging the brand's high-performance V-Series cars to show that Cadillac can run with the best German cars.
Cadillac will face a big challenge when it launches a small sedan—comparable in size to BMW's 3 Series—in 2012. The ATS, as it is being dubbed, is exactly the entry-level car Cadillac needs to bring in younger luxury buyers, says IHS Global Insight (IHS) analyst John Wolkonowicz. On the other hand, Americans look to Cadillac for such big, brash cars as the Escalade, says Eric Noble, president of The CarLab, an Orange (Calif.) consulting firm. There lies Cadillac's challenge—to establish a brand identity that can sell both.
On that score, company Vice-Chairman Bob Lutz wants to give Cadillac a different take on the kind of high-end car wealthy consumers aspire to. Conventional wisdom says it should be a big sedan such as the Mercedes S600, but Lutz wants to build the Converj, a sleek two-door sports car that runs on the same electric drive system as the ballyhooed Chevrolet Volt. That would change the conversation, putting Cadillac back in the technology game, as it was in its heyday. But production would be years away—if the car gets built at all. Right now, Cadillac just needs to prove that its new models can compete.