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GM's Cadillac Brand Will Do Big Things

Photo source: GM

As the U.S. economy continues its gradual rebound, it's mirrored by a surge in automotive sales. That news is to the delight of Detroit rivals Ford (NYSE: F  ) and General Motors (NYSE: GM  ) . Ford's having great success with its fuel-efficient vehicles such as the Fusion and Focus. It's also enjoying record sales with the Escape and Explorer. One thing that GM has over Ford – by far – is a luxury lineup that's actually selling: Last year the Escape more than doubled the sales of the entire Lincoln brand – ouch. Let's see what's going on with the Cadillac lineup and why it's important for investors.

All about the bottom line
Obviously it's important to increase the top-line revenues, but the bottom line is what you take to the bank and is much more important. The biggest profit makers for Detroit automakers are pickup trucks. That's not a trend likely to change anytime soon. That said, luxury vehicles represent higher dollar values and better margins than your standard vehicles. In addition to that, luxury brands offer incremental sales to automakers. If Ford actually had a Lincoln brand that sold anything, it wouldn't compete with its other hot selling vehicles – like the Fusion.

Cadillac surges
While the Lincoln MKZ had more hype than any Lincoln since the Navigator, the launch was completely bungled by Ford. Quality inspections took too long causing months of delays. While Ford struggles to correct its mistakes, the Cadillac line is enjoying its spot in the sun. The Cadillac ATS helped drive a 49% sales increase last month – pretty impressive. It's been a hit with the consumers, and it's also been bringing in the exact target audience.

"It's a pretty diverse group that's coming through the door now," said Sewell, who owns four Cadillac dealerships in Texas. "The new ATS is bringing in the ideal buyer: younger and better educated." 

Not slowing down
The ATS has been a hit with consumers but GM isn't stopping there. It's rolling out 10 new models by 2105 and continues to impress critics with most of the redesigns. At the 2013 Detroit Auto Show the ATS was named the "Car of the Year". Recently at the New York Auto show the CTS sedan garnered quite a bit of attention as well. These new models are incredibly important to the bottom line and GM intends to bring that cash home. CEO Dan Akerson set forth a goal to boost operating margins in North America up to 10% from 7.4% by mid-decade. That's great news for investors who have been quick to point out GM hasn't been as profitable as desired and is a step behind rival Ford in operating efficiency.

Not the same GM
I understand it takes time to reverse the impression consumers have from years of terrible GM vehicles. Things have changed, both Ford and GM are producing cars people actually want to buy. The quality has been ramped up as well. Consumer reports went as far to say that the Cadillac ATS was one of the best it had seen from GM.

Catching up
The Cadillac brand is the fourth-best-selling luxury line in the U.S. but will have to convince consumers this is a renewed and quality lineup. Over the next couple years it could have a chance to break into the top three – something it hasn't accomplished since 1999. Watching Ford and GM's luxury brands over the next three years will be an important factor in their profitability. As it looks right now, GM has a huge leg up on its Detroit rival.

Worried about GM?
Few companies lead to such strong feelings as General Motors. But ignoring emotions to make good investing decisions is hard. The Motley Fool's premium GM research service can help, by telling you the truth about GM's growth potential in coming years. (Hint: It's even bigger than you think. But it's not a sure thing, and we'll help you understand why.) It might help give you the courage to be greedy while others are still fearful, as well as a better understanding of the real risks facing General Motors. Just click here to get started now.

Read/Post Comments (7) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 13, 2013, at 10:28 AM, burttoast wrote:

    It's rolling out 10 new models by 2105 .....No ONE will be alive to see these new 2105 models,,,,,,,,

  • Report this Comment On April 13, 2013, at 10:54 AM, TMFTwoCoins wrote:

    Wow. I wonder how many times I read this during edits and missed that.

    I'll just blame my keyboard, it's too slow for my typing.

    Good catch, though.

  • Report this Comment On April 13, 2013, at 11:01 AM, Rmsmithsantacruz wrote:

    Wow! 2105? Production must be up.

  • Report this Comment On April 13, 2013, at 11:57 AM, bobthegoodone wrote:

    Having worked at Cadillac I wonder if anything has really changed there ? I mean all I ever heard there was we know it isn't right but it is Good Enough !

  • Report this Comment On April 13, 2013, at 5:53 PM, emjayay wrote:

    Personally I can't get past the basic style Cadillac introduced a couple of generations ago, even though they keep softening it up. And making the grille worse. On the other hand the Buick Regal is in my opinion about the best looking intermediate size car. The Verano is very nice too. Nice interiors too. But then they are rebadged Opels (plus a trunk instead of a hatchback for the Verano). GM can ignore my opinions - I drive a minivan.

  • Report this Comment On April 13, 2013, at 9:30 PM, jamespellosm wrote:

    My family only drives mercedes, but I would gladly turn mine in for the new MKZ over any Cadillac

  • Report this Comment On April 14, 2013, at 12:08 AM, Elmoore wrote:

    Government Motors does not design automobiles for the United States. All I have seen at the car shows are right hand drive conversions. When we drive up to the fuel pumps to put fuel in an automobile we stay to the right of the pumps except on Government Motor automobiles. I'm pulling up to put fuel in my truck and these idiots drive in front of me from the other direction.

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