Bloomberg News

GM Seen Doubling Cadillac With New Models to Catch Lexus

February 28, 2012

Cadillac at a shopping mall in Beijing on Oct. 21, 2011. Photographer: Mark Ralston/AFP/Getty Images

Cadillac at a shopping mall in Beijing on Oct. 21, 2011. Photographer: Mark Ralston/AFP/Getty Images

General Motors Co. (GM), having regained global sales leadership from Toyota Motor Corp. (7203), is planning new Cadillac models to more than double sales and surpass the Japanese automaker’s Lexus brand as the No. 4 luxury line.

Chief Executive Officer Dan Akerson is pushing the Detroit- based automaker to turn Cadillac into a global player with the scale to better compete with German leaders Bayerische Motoren Werke AG (BMW)’s BMW, Volkswagen AG (VOW)’s Audi and Daimler AG (DAI)’s Mercedes- Benz. Within 10 years, GM wants to be solidly in the fourth spot currently held by Lexus, said a person familiar with plan.

Cadillac, which peaked more than three decades ago, must choose the right new models to meet Akerson’s goal, said the person, who asked not to be identified because the plans are private. The U.S. brand must find a way to reach younger buyers than Mitt Romney’s wife, who drives two SRX sport-utility vehicles. The median Cadillac customer last year was 63 years old -- the age Ann Romney turns in April -- according to J.D. Power and Associates.

“We are working on more new Cadillacs than at any point in the brand’s history,” Don Butler, GM vice president for Cadillac marketing, said earlier this month in an interview in Chicago. “We’re constantly talking about what’s the best way to become this global player.”

The automaker is weighing several vehicle options for Cadillac, Mark Reuss, president of GM North America, said in an interview last month. Executives are considering a sedan larger than the XTS, a sport-utility vehicle smaller than the SRX and a new Escalade on the same vehicle architecture as the popular Buick Enclave, Reuss said.

Product Decisions

“It’s a question of what products they’re offering,” said Alan Baum, an independent auto-industry analyst based in West Bloomfield, Michigan. “When they were offering the Escalades, they were unique products, certainly, but they were also products that had relatively modest demand.”

David Caldwell, a GM spokesman, declined to comment on Cadillac’s sales goals. GM sold 199,000 Cadillac cars and SUVs last year, including 152,000 in the U.S., the company said. IHS Automotive estimated that Cadillac finished 2011 as the sixth or seventh best-selling luxury brand in the world behind Volvo and possibly Land Rover.

The world leader is BMW followed by Audi, which overtook Daimler last year, when each brand sold more than 1 million. Lexus finished with an estimated 408,000 sales, more than double Cadillac’s 2011 sales, IHS said. Cadillac’s best year was 1978, when it sold 350,000 cars.

Pre-Manning Peak

That peak preceded the birth of Eli Manning, the pro football quarterback who received a Cadillac Escalade hybrid as a prize for being the most valuable player in the 2008 Super Bowl championship game. Manning, 31, received a Chevrolet Corvette this month when he won the award again.

GM slid 0.8 percent to $26.24 at 9:48 a.m. New York time. The shares gained 31 percent this year before today.

Akerson met with his senior leadership team at GM’s design dome in Warren, Michigan, in the middle of last year about the future of Cadillac and that’s when the 10-year vision for the brand was outlined, a person familiar with the meeting said.

The CTS sedan and SRX have helped improve Cadillac sales and image in recent years. GM will begin selling a large sedan, the XTS, and a small sedan, the ATS, this year to help broaden its lineup. The ATS will be sold in the competitive segment that includes the BMW 3-Series and Mercedes C-Class.

The automaker has also said it will make a plug-in hybrid Cadillac called the ELR, using technology similar to the Chevrolet Volt. The company hasn’t said when it will go on sale.

While considering a broader lineup, GM’s Reuss said the company needs to make wise choices and doesn’t want to add too many models to the brand.

Bad Movie

“We’ve seen that movie; it’s a bad one,” Reuss said of over-expanding the Cadillac range. “Capital is not an endless bucket that we have access to.”

Part of the discussion has involved changing the Escalade, which has been designed as a body-on-frame vehicle like a pickup, into a crossover model with a unibody structure to improve the mileage, Reuss said. GM’s Lambda platform is the basis of the Buick Enclave, which gets about 19 percent better mileage than an Escalade, and could be used for the Cadillac model. U.S. fuel-economy requirements for those SUVs and other light trucks start increasing in 2016.

“If we were to do that, it would be something not like a Lambda today, but rather something that makes a different statement,” Reuss said. “It could look bigger than that.”

The debate also involves whether Cadillac should make a smaller SUV to compete against BMW’s X3, which helped drive the German-brand’s 13 percent sales increase in the U.S. to overtake Lexus as the nation’s top-selling luxury brand last year.

‘International’ Appeal

The SRX is too big for most global markets, as is the Buick Enclave that could serve as a basis for the next Escalade, said Baum, the analyst.

“They have to make products that are more compatible with what international drivers want,” Baum said. “Some crossovers might do that.”

While Cadillac will need aggressive growth to make fourth- place globally, the brand has an opportunity reach more customers as Baby Boomers are replaced in showrooms by a younger generation that may be open to a different take on luxury, said Rebecca Lindland, an industry analyst with IHS Automotive.

“The market is also changing in the next 10 years quite dramatically,” she said. “We’ll have the top of Gen Y coming into peak earning years while Gen X is in peak earning years.”

Another key to growing globally will be establishing Cadillac as a legitimate luxury brand beyond North America, she said.

“Cadillac will have to get love from China,” Lindland said. “They have a significantly harder road to go in Europe, and they know that.”

To contact the reporter on this story: Tim Higgins in Southfield, Michigan, at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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