Can the New Cadillac Catch Up to BMW?

Published in WSJ on March 26, 2013.

For General Motors Co.'s Cadillac luxury brand, it's back to square one.

A decade ago, Cadillac launched a midsize sedan called the CTS that used sharp-creased looks inspired by stealth bombers to attract younger buyers who were shifting toward foreign luxury cars.

The car had some success in rejuvenating Cadillac's image but didn't revive slumping sales—and failed to attract enough younger buyers. Once the top-selling luxury brand in the U.S., Cadillac finished 2012 in fifth place, behind BMW, Mercedes-Benz, Lexus and even Honda Motor Co.'s  Acura.

On Wednesday, the brand is expected to unveil the latest incarnation of its CTS at the New York International Auto Show. Cadillac is again promising to use the $40,000 and up car to challenge rivals such as BMW's 5 series and Daimler AG's Mercedes-Benz E-class for buyers.

The 2014 CTS will offer an eight-speed transmission—a first for GM's brands. The car will go from the heaviest to the lightest among its European rivals, giving it better fuel economy. Cadillac executives say the vehicle uses aluminum in front doors and bumpers to slim down to 3,616 pounds, about 250 pounds less than the last design.

 

 

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The first 2013 Cadillac ATS available for retail sale is prepared to roll off the assembly line at the GM in July.

"The CTS was the vehicle that began the Cadillac renaissance," said Robert Ferguson, Cadillac's global brand chief. The new model "is a cornerstone vehicle for us and will keep the momentum going."

But in some respects it is the same old Cadillac facing the same dilemma. The average age of a Cadillac owner is 65 years old, compared with 49 years for BMW and 48 years for Audi, according to researcher StrategicVision. The new-to-GM eight-speed transmission has been available in rival vehicles for more than a year.

After a lot of ups and downs over the years, the brand is focusing on a three-sedan portfolio—the ATS, CTS and XTS. That compares with the four different body styles in the BMW 5 series alone. GM says it plans to introduce six new or refreshed Cadillacs over the next four years and insist the coming CTS won't lag the size, length and electronic bling of its German rivals.

A strong debut for the new model is critical for GM. The company is pinning its future on the global sales of two brands: Cadillac and Chevrolet. GM needs Cadillac to crack the luxury barrier and boost its presence in markets such as China, Russia and perhaps Brazil if it hopes to generate the profit it needs for the brand's long-term survival.

That the new CTS a decade later faces the same, unaccomplished mission of regaining market and mind share from German luxury brands shows how much its rivals have gained. Audi, BMW and Mercedes are introducing a variety of new models in the U.S. and China this year to broaden their appeal to new and younger buyers.

Despite repeated revival promises, Cadillac's U.S. market share has remained relatively unchanged over the past 10 years, bouncing between a high of 1.35% in 2005 to 1.05% at the end of 2012.

Since the launch of the first generation CTS in 2002, Cadillac has sought to hammer a message that its cars are no longer the soft-riding, oversize boulevardiers that wealthy members of the World War II generation piloted to summer hotels in the Catskills or cabins in Northern Michigan.

It strove to recast the car as a high-performance machine, showing images of the CTS roaring around Germany's Nürburgring race circuit—a testing ground the German brands use to fine-tune the handling of their vehicles.

To launch last year's new sedan, the 2013 ATS, Cadillac commissioned a series of television spots showing a pair of young driving enthusiasts flogging the car along twisty roads in exotic locations from China to the tip of South America.

Today, GM again is considering changing Cadillac's advertising agency. If it does, it would be the fifth such switch since 2007.

 

Cadillac

2014 CTS, above, would chase BMW's 5 series and Mercedes E-class.

"We owe it to ourselves to take a step back," Cadillac U.S. marketing chief Don Butler said. "We are looking at everything go on in the brand and asking ourselves should it be structured differently.

In part, that is because the about $38,000 and up ATS has gotten off to a slow start. U.S. dealers had a hefty 106 days' supply of the cars as of the end of February. By contrast, BMW's overall stock of unsold cars in the U.S. amounted to just 39 days' supply.

R.L. Polk  & Co. automotive analyst Tom Libby said the new Cadillacs represent "a huge step forward for them." But at the same time, he said, BMW, Audi and Mercedes-Benz are escalating their assaults on the U.S. market with new models—including lower-priced vehicles aimed at picking off younger, affluent buyers before they ever consider Cadillac.

"They are also expanding their product portfolio downward which only increases the pressure," Mr. Libby said.

Mercedes-Benz, for example, will use the New York show to debut its CLA 45 AMG—a high performance version of the compact four-door it highlighted during the 2013 Super Bowl. The CLA will start under $30,000. Mercedes says the AMG version can reach 60 miles an hour time from a standing start in under 5 seconds at a price of about $50,000.

"Over the next seven years we are launching 30 new or refreshed cars, which averages out to about one new car per quarter," Mercedes-Benz spokesman Christian Bokich said. "We continue to invest in our product portfolio to meet what we see as the future demands of luxury customers."

Those new vehicles and others could make it tough for Cadillac to hang on to its rank in the U.S. Hot on Cadillac's heels is Volkswagen AG's  Audi brand, which has been steadily increasing market share since 2004 when it had 0.44% of the U.S. market. Audi had a share of 0.96% at the end of 2012, and the brand is launching more models—including a compact A3 sedan that will be shown at the New York auto show.

To lead the latest relaunch of Cadillac, GM CEO Dan Akerson reached outside the company's automotive marketing ranks and named Mr. Ferguson, GM's Washington lobbyist and a former AT&T Inc. executive as Cadillac's global brand head.

Mr. Ferguson said he is confident Cadillac new lineup can take on the Germans by more directly positioning its cars in the same size and price categories of the German brands. GM says the ATS pricing is akin to BMW's 3 series and Audi's A4.

With the new sedan, "We are going to ride the CTS to get Cadillac to sales numbers it has never posted," Mr. Ferguson said. Cadillacs including the ATS and compact SRX sport utility also will help Cadillac in growth markets such as Brazil, Russia and China, he said.

Early sales of the ATS in the U.S. isn't a fair indicator of the brand's potential, Mr. Ferguson said, because they reflect a failure to supply enough all-wheel-drive models in a segment where roughly half the cars sell with the feature.

Now, Mr. Ferguson said, 70% of those customers buying a new ATS sedan have never previously owned a Cadillac.

Data from Edmunds.com, the car shopping website, suggests that the ATS is getting some looks from people shopping German brands. In February, about 4.9% of shoppers who looked at a BMW 3 series also looked at the ATS, up from 3.3% in December 2012.

But there was more cross-shopping traffic between the ATS and the Cadillac CTS. Of those who looked at a CTS, 26% also looked at the ATS. Of course, some things never change: Edmunds analyst Jessica Caldwell said the top state for ATS purchases is Michigan, GM's home state.