Why the New Cadillac CTS Is Crucial to GM

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You may not have been paying attention, but something big is happening to Cadillac.

Cadillac was once the great American luxury-car brand, but for many years it has kind of been a joke, one more symbol of how far General Motors  (NYSE: GM  )  has fallen since its heyday.

But lately, Cadillac has been posting some big sales gains, thanks to some surprising new products. It's all part of a long-term plan to make Cadillac a true global rival for BMW  (NASDAQOTH: BAMXF  )  and Mercedes-Benz -- a plan that is among GM's highest-priority projects.

The all-new 2014 CTS is a critical car for Cadillac and GM. Photo credit: General Motors.

Nothing is more critical to that plan than the all-new Cadillac CTS, set to hit dealers this fall. Here's why.

Why Cadillac's revival is a huge priority at GM
GM held its Global Business Conference last week, an annual event where the company goes into great detail about its key strategies and upcoming products. It's a closed-door meeting for Wall Street analysts only, but media folks are allowed to listen in by phone.

I was one of those media folks, and one of the big takeaways from the meeting is that GM's effort to revive Cadillac is a huge, huge deal, driven by a hard-headed business case. That case starts with this: GM sells cars and trucks all over the world, but for many years, much of its profits came from pickup and SUV sales here in the U.S.

That's true at rival Ford (NYSE: F  ) , too -- in fact, Morgan Stanley auto analyst Adam Jonas said last year that as much as 90% of Ford's profits might come from pickups. The proportion is likely considerably smaller at GM, but it's still huge -- too huge for GM CEO Dan Akerson's comfort.

Akerson is a Wall Street veteran who joined GM after its 2009 bankruptcy. He wasn't part of the team that drove GM into the ditch. That means his perspective is different from many Detroit insiders, and it means that he's more willing than many to question the industry's status quo -- and in some ways, more able to see things that insiders miss.

One of the things he saw was a company that was too dependent on the U.S. pickup truck market. Another thing he saw was rival Volkswagen (NASDAQOTH: VLKAY  ) . VW's profits dwarf GM's -- and nearly half of those fat profits come from VW's successful luxury brand, Audi.

Akerson put two and two together and saw that turning Cadillac into a top-shelf global luxury brand would increase GM's profits while decreasing its risk -- something any CEO would like.

But he also knew full well that Cadillac's journey would be a long, hard road. That's where the new CTS comes in.

Why the CTS needs to be excellent
Arguably, the first step on that road came last year, with the compact Cadillac ATS sedan. The ATS was aimed squarely at BMW's 3-Series, one of the finest cars made -- and to the shock of many longtime GM critics, the ATS hit the mark.

Reviewers praised its light weight, fine handling, excellent interior, and overall impression of quality. ATS sales have helped drive big sales gains for Cadillac -- the brand is up more than 37% so far this year, its biggest gains since 1976.

But now comes the bigger challenge: Moving up from there. The ATS is essentially an entry-level luxury car. For Cadillac to have the kind of global credibility it wants, it needs to show that it can play at the higher levels, too.

Cadillac's edgy styling has been refined considerably for the new CTS. Photo credit: General Motors.

GM hopes that the CTS is the car that will make that point loud and clear. It's bigger, far more plush, and starts at about $6,000 more than the mostly well-regarded outgoing model, changes that aim it squarely at Mercedes' E-Class and BMW's 5-Series sedans.

On paper (and in photos, as you can see), it looks great -- more formal than the old car, but still very Cadillac. It carries Cadillac's edgy and controversial "Art & Science" styling forward, but in a more subdued and sophisticated way than its predecessor. Inside, there's good leather and nice wood and a surprisingly long list of color choices and options.

GM neglected Cadillac's interiors for a long time, but now sees interior trim as a place where the brand can excel. Photo credit: General Motors.

There's a lot of technology, too, including quite a bit that is aimed at weight reduction. Low weight is one of the factors in the ATS's success: All other things being equal, lighter cars handle better, accelerate faster, and get better fuel economy.

On that front and many more, GM is hoping to replicate the ATS's success with the new CTS, but at a higher level.

A very big step forward on a long journey, if it succeeds
Even if it's a smash hit, the CTS isn't going to make Cadillac a global contender all by itself. But it's an extremely important step in the journey: GM is hoping to show that the ATS was no fluke, but just the first in a new lineup of vehicles that will make critics and consumers take Cadillac seriously for the first time in a generation.

If the CTS is successful -- and it looks very promising from here -- then that will lend credibility to the Cadillac comeback and raise expectations for the next Cadillac sedan, the much-rumored full-sized "flagship" that is expected in a couple of years. It's expected that GM's goal with that car is to outdo Mercedes' big S-Class, long the benchmark for the very idea of a full-sized luxury car.

If GM can pull that off, then Cadillac will be in a very good position to achieve Akerson's growth and profitability goals for the brand. But the CTS is the critical step in getting from here to there, and that's why GM shareholders should be watching its launch very closely.

Read/Post Comments (9) | Recommend This Article (5)

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 June 17, 2013, at 11:31 PM, AcuraT wrote:

    The CTS is not so much a stretch for Cadillac - it is a stretch of the ATS platform. Using the bones of the ATS development, GM is going to save money as well as develop a superior car to the current outgoing CTS. Unfortunately for GM, to replace the short term solution XTS is going to be more difficult but for now, if GM executes correctly, it should be able to leverage the ATS platform and transform it into an above average CTS.

  • Report this Comment On June 17, 2013, at 11:48 PM, LungsOfSteel wrote:

    Now the only remnant of bone-headed GM thinking is the quasi-European model names. The great show car (with equally great name), the Evoq, became the XLR when it hit the streets - a shame.

  • Report this Comment On June 18, 2013, at 3:26 AM, vinnieboiblue wrote:

    GM is making a huge mistake with the CTS starting price. It should start off at $45 G's not 48 and rising to 60. They need to do what Lexus and Acura did. Start it cheap, let it build its reputation and gradually raise prices.

  • Report this Comment On June 18, 2013, at 3:54 AM, chrisausten wrote:

    This new model looks great...I'm an ex Lincoln buyer looking for something new. Since the new redesigned Lincolns look god awful ugly, I may very well buy Cadillac this time.

  • Report this Comment On June 18, 2013, at 6:37 AM, TMFMarlowe wrote:

    @AcuraT: Someone inside GM once described the XTS to me as a "placeholder" -- a super-improved version of the old Deville/DTS to offer to Cadillac's longtime customers, if you get my meaning. It wasn't meant to be a long-term model, just a way to give Cadillac a big car for a few years when GM didn't have much money to spend (mechanically, it's a super-deluxe cousin of the new Impala). But it'll stick around and get revised if it keeps selling, in a niche between the new CTS and the upcoming big RWD sedan.

    For what it's worth, they've rolled out the XTS in China and it's doing pretty well. It has a very well-done interior that compares well with the German cars, even if the overall package is kind of old-school Cadillac (albeit well-updated).

    @LungsOfSteel: I agree, and so do some people inside GM, or so I hear. There is a movement to name the upcoming big Cadillac sedan "Fleetwood", and take the whole model line back to heritage Cadillac names. (But there's also a line of thinking that the letter names work better internationally, and the big car may get called "ZTS" (yuck) or "LTS" instead. We'll see.).

    @vinnieboiblue: They've already followed that path. This is the third-generation CTS, and each generation has gone up in price and content. They actually had a Powerpoint slide explaining this in the Global Business Conference presentation on Cadillac last week, a chart with all three CTS generations pictured side by side.

    Thanks to all for reading.

    John Rosevear

  • Report this Comment On June 18, 2013, at 8:26 AM, ponchoman49 wrote:

    It amazes me in this messed up world we now live in that for Cadillac to be successful it has to literally imitate everything BMW does, even down to the lame boring letter car names. Have we become so cold? I see nothing wrong with a traditional style well made larger sized Cadillac with a real name affixed to it's fenders. Why is this so hard for today's young writer's to comprehend?

  • Report this Comment On June 18, 2013, at 8:59 AM, originalsoul31 wrote:

    I have a 2003 Cadillac CTS. Bought it used in January. It's been in the shop 8 times since. Half the time, I'm scared to drive it because I know not what it will do on any given day. While my car was in the shop, I drove an ATS and loved every moment of it. If the new CTS is anything like the ATS, then it's a clear winner. What disturbs me about this article though, is the mention of a 'flagship' sedan for Cadillac in the coming years. Is the XTS not big enough?

  • Report this Comment On June 18, 2013, at 11:35 AM, TMFMarlowe wrote:

    @originalsoul31: It's not so much that the XTS isn't big enough, it's that it's not premium enough. The new car may or may not be a little bigger than the XTS, but it will ride on an all-new rear-wheel-drive platform that is a lot more sophisticated than the XTS's underpinnings, and it'll have an interior that is another step up, more in Mercedes S-Class territory or maybe even a little higher.

    Thanks for reading.

    John Rosevear

  • Report this Comment On June 18, 2013, at 2:44 PM, AScottR1 wrote:

    No problem with giving the new Caddies real names, but regurgitating names of the past that have little connection to today's culture or the psyche of the average lux car buyer is a mistake. Despite its storied heritage, think of the image the word "Fleetwood" projects to modern buyers. Fleet cars + wood? Maybe FLT8 would be a nice compromise.

    For too many years Cadillac has struggled holding tight to its mundane and oversized recent past instead of embracing the future, but by the hot new looks and quality of the new CTS, this Audi A6 owner who was born and raised in Detroit, will take a serious look at the new offerings Caddie is putting out and would be happy to tool around my new hometown of Manhattan finally proud again to represent the Motor City. Add AWD and it could be a killer.

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