Cadillac aims to play in Europe: GM finally gets serious about being a contender in the global luxury market

Automotive Industries, Nov, 2001 by Angus MacKenzie

Cadillac used to call itself "The Standard of the World," but for decades few outside GM'S sinecures in Detroit have actually believed it. Cadillac once rivalled Rolls-Royce as a paragon of luxury; later, as the brand embraced mass production and volumes surged in the 1940s and 50s, it came to symbolize a moneyed, confident; faintly flamboyant attitude that today is found among BMW buyers.

But few people under age 50 now aspire to owning a Cadillac -- and that's in North America, which accounts for 98 percent of sales Outside the U.S., where GM sold fewer than 5,000 Cadillacs last year, the brand lives on in a time warp of tailfins and Elvis. "Cadillac has a wonderful image," says Rudy Zeller, global market director of GM Europe. "But it's missing about 30 years of development."

The brutal reality is GM's premium brand is either irrelevant or invisible. And that means GM is missing one of the few real profit opportunities in the auto industry today. "Premium brands are less cyclical than volume players, produce consistently higher profits and have higher growth potential," says Deutsche Bank analyst Mark Little. "A strong brand reduces pricing pressures, which results in higher margins and reduced risk for leasing portfolios."

Ford figures show sales of what it calls "compact premium" autos have grown by 16 percent worldwide over the past five years, mainly-- and this is a key point -- at the expense of mainstream brands. Premium brands have moved into less expensive market segments -- Audi's A3, the Mercedes-Benz A-Class and the forthcoming BMW 1-Series are all VW Golf competitors -- and with consumer earnings increases outstripping price rises in many markets, have also become more affordable. Significantly, while the many mainstream producers are mulling a recession, both Mercedes-Benz and BMW still expect record sales this year.

Japanese automakers saw the need to develop premium brands in the late 1980s to compete with the European luxury car establishment, although only Toyota's Lexus has so far achieved a degree of credibility. VW Group CEO Ferdinand Piech has spent a decade pushing Audi inexorably upmarket, while Ford has simply opened its checkbook, adding Volvo and Land Rover to its 1980s acquisitions of Aston Martin and Jaguar, and owing Lincoln into the mix to create the Premier Automotive Group (PAG).

GM, meanwhile, has been left behind. Cadillac sales this year will total fewer than 170,000 units, and even factoring in 130,000 units a year from Saab (the only other brand in the company's portfolio that could be considered premium) the world's biggest automaker's total premium vehicle sales worldwide will be barely one-third those of DaimierChrysler and BMW. Even Ford will sell three times as many premium brand vehicles as GM this year, and VW's Audi twice as many.

What's more, GM's premium car business is badly balanced. Not only does North America alone account for 98 percent of Cadillac sales, but more than half that volume is taken up by just one model, the DeVille, which despite significant improvements in quality, technology and driveability, remains a traditional full-sized American sedan whose average buyer is more than 60 years old. With 30 percent of Saabs also going to the U.S., GM effectively has fewer than 100,000 premium brand vehicles to offer the rest of the world--less than one fifth the penetration of the German heavyweights.

"I think it's paramount we have an American carmaker among the world's great brands," says Mark LaNeve, general manager of Cadillac Division since May. He isn't just being patriotic; he's outlining the key thought behind GM'S radical plan to reinvent "The Standard of the World." In simple terms, Cadillac is going global. And Europe is to be the crucible in which the new Cadillac's premium credentials are to be tested.

Three of the four new Cadillacs to be launched in the next two years will be what LaNeve calls "global core products" and built off GM's new Sigma rear-drive platform. First up is the new CTS, which goes on sale in the first quarter of next year. It will be followed in the fourth quarter by the XLR roadster, closely based on the Evoq concept unveiled at the 1999 North American International Auto Show, and in the second quarter of 2003 by a production version of the Vizon all-wheel-drive crossover concept, initially known as the LAN, but now called the SRX. An all-new Sigma-based STS will appear in 2004.

Cadillac won't be abandoning its conservative and still profitable U.S. heartland though -- the DeVille and an expanded Escalade range will be produced solely for the North American market. And while the Sigma-based cars are designed to appeal to European and Asian premium car buyers, their real target is Americans who might otherwise choose a BMW or a Lexus.

"I think from an image standpoint American consumers need to know Cadillac can be a viable, credible competitor in Europe," says LaNeve. "It helps the image in the U.S. if we can sell cars outside the U.S., but I also think you get a better product if you're meeting the needs of an international standard European customers are probably more demanding than U.S. customers," he says bluntly. "At least in terms of engine and chassis technology, and fit and finish."