Is Cadillac Really Back?


Cadillac's 2014 CTS. Photo Credit: General Motors.

General Motors (NYSE: GM  ) is years behind Ford (NYSE: F  ) in certain aspects, such as operating margins in its North American region. That's mainly because Ford has put much of its effort into consolidating platforms, improving operations and running plants at optimal capacity. On the other hand, GM's luxury Cadillac brand is years ahead of Ford's Lincoln lineup and continues to rebound in today's market – sales are up 30.3% through July. With that success you'd expect high fives across the Cadillac conference table and raises galore. Instead, one top Cadillac executive was fired and another recently quit. So is Cadillac's surge really that impressive, or is there a much longer path ahead?

Cadillac surges
After the first quarter, GM drove home press releases that Cadillac was surging and announced that its year-to-date sales increase of 38% was its best since 1976.

"Cadillac is back," said Bob Ferguson, vice president, Global Cadillac in a press release. "Our growth is product-driven, new luxury vehicles with dramatic design and performance drawing new customers to showrooms."

There's no doubt about the above statement's validity regarding new product design and vehicle performance driving customers to showrooms. More importantly 70% of ATS buyers are choosing the flashy ride as their first Cadillac, stealing market share from rival luxury brands.

Cadillac's CTS previously had found major success; years ago it won Car and Driver's highest award three consecutive years in a row. The 2014 CTS will be redesigned and looks to impress consumers with its upgrades when it hits the showroom.

The claim that Cadillac is back isn't quite correct in the grand scheme of sales:


Graph by author, information via Automotive News DataCenter; 2013 sales projected from first six months.

To be fair, as the automotive market continues its rebound from the depths of the recent recession, nothing is really "back". The overall market would somewhat replicate the above graph as well.

Still, Cadillac sales have a long journey to get back to the very successful days of old. The part that GM has been so excited about, regarding its best increase since 1976, is the uptick at the end of the graph circled in red – and that's projected from the first half of sales, not guaranteed. In addition to that, I started the vertical axis at 100,000 or the uptick would hardly be noticeable. Here's a better look at the circled part of the graph – Cadillac's monthly sales over the last year – without projecting the next six months.


Graph by author, information via Automotive News DataCenter.

Why it matters?
The reason all this matters to investors is that a successful luxury line is very important to automakers profits and margins. The vehicles represent incremental sales and revenues because, at higher transaction prices, the vehicles don't compete with main brands like Ford or Chevrolet, and are packed full of premium tech options which is good for top- and bottom-line growth. On top of all that, the world's largest and fastest-growing automotive market, China – where GM has a solid market position – is expected to grow its luxury appetite at a good pace throughout the decade.

GM seems well positioned to take advantage of growth opportunities for its luxury lineup. A few years ago Cadillac was essentially a three-vehicle lineup, but now looks to grow to as many as 10 models in 2015. GM's next generation CTS hits the showrooms this fall and the Escalade arrives later with its first redesign in eight years. Cadillac is also developing a seven-passenger crossover as well as a smaller crossover, and redesigning its SRX. It also plans to introduce the LTS which will compete with the BMW 7 series and Mercedes-Benz S class – scheduled to launch in 2015.

Bottom line
Digging into the numbers provided me with a solid and often forgotten investing lesson – always dig deeper, and don't start research with a biased idea. In reality, Cadillac isn't quite back yet, there's a long road ahead of the company, but I believe it will get there. It looks to be a good ride for investors if Cadillac continues to replicate its recent product quality and performance – at least that part of Cadillac is back, and that's what Ferguson meant.

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Read/Post Comments (10) | 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 August 08, 2013, at 12:17 PM, AcuraT wrote:

    This is a "whatever" story to slam GM again as the Motley Fool writers like to do. Cadillac is doing far better while Lincoln (as the writer even admits) is DOA. The ATS was well executed. Sales are up astronomically for that one model. The CTS is coming next year and if it does the same thing, sales will continue to rise (CTS sales are slumping right now with an old design and the pending new one). The XTS, not a great car but a better car than the cars it replaced, is also doing okay. I would like Daniel Miller to find ONE American Luxury band that is doing the numbers it was doing in the 1970s . The problem is, he cannot. In fact, he cannot even find one American luxury brand in America doing the improvement that Cadillac has this year. He just wanted to write an article saying that Cadillac is not that great, and not doing what it did in the 1970s. Congratulations, mission accomplished.

    For a company like GM given up for dead, it is pretty impressive what they have done. Ford has yet to even get started on reviving Lincoln after many failed attempts. Yes, Ford is doing great on the primary brand - but that is it - it has nothing else cooking right now.

  • Report this Comment On August 08, 2013, at 12:35 PM, TMFTwoCoins wrote:

    @AcuraT

    I've said many positive things about GM in the past, and currently GM has a large stake in my portfolio -- for which I'm very optimistic about.

    I didn't want to write an article that said "Cadillac is not that great". I wanted to say, beware of PR spins and dig into information yourself, you might be surprised. If you re-read the conclusion, I think you'll see I'm very optimistic about Cadillac's potential going forward.

    Thanks for posting,

    Daniel

  • Report this Comment On August 08, 2013, at 12:40 PM, AmericanFirst wrote:

    Acura,

    " Ford has yet to even get started on reviving Lincoln after many failed attempts"

    I believe your comment above is incorrect.

    The new MKZ in June outsold the ATS with less than half the incentives offered by Cadillac. In July, the difference in volume was approx. 100 units. Also remember, GM has offered the highest average incentives per vehicle sold in the industry, July Ytd.

    http://www.businessweek.com/articles/2013-06-04/the-lincoln-...

  • Report this Comment On August 08, 2013, at 12:59 PM, Newbeatgen wrote:

    The key for GM is less about Cadillac outside of the North American market. Buick is highly popular and positioned well in China which will continue to be a more important market for GMs long-term success. GM will need to make continued investments and upgrades on both lines if they want to fully tap into the Asian and North American markets. GM will need to find a way to integrate Cadillac/Buick/Opel into a global platform that can further reduce costs (and huge losses in Europe) and provide better distribution for its luxury line-up along the three continents.

  • Report this Comment On August 08, 2013, at 1:32 PM, LungsOfSteel wrote:

    Lincoln is hardly a competitor for Cadillac, AmericanFirst, so Mr. Acura was correct.

    Ford let Lincoln go by the wayside and now they're just building a better Buick.

  • Report this Comment On August 08, 2013, at 2:14 PM, AmericanFirst wrote:

    Lungs,

    If you had read my previous post closely, I was stating or implying, Lincoln was taking a first step by providing a viable competitor to compete against the ATS. There will be more models that will be competitve. I wouldn't bet against Mulally, he is the best CEO in the industry. FORD has the highest increase in U.S. market share, July Ytd, in the face of GM, Honda, Chrysler, Toyota, Nissan and the government.

  • Report this Comment On August 08, 2013, at 3:10 PM, AcuraT wrote:

    Daniel, yes, I see that you were more postitive at the end about what GM is doing. In the end, I guess I agree that you were fair about descirbing what they have acheived and where they have to go. Thanks for pointing this out to me.

    AmericanFirst - yes - the MKZ is doing better but that report you point to is based on May sales. The last few months Ford has refused to talk about Lincoln sales other than to say the MKZ hybrid is doing particularly well - without giving any numbers. See their last financial update where they talk extensively about Ford overall, and particulary about the Ford brand, and talk for about 20 seconds about Lincoln's MKZ hybrid without giving any specific numbers.

    http://finance.yahoo.com/news/ford-motor-companys-management...

    Ford is still having problems with Lincoln, even the new MKZ is not achieving the numbers necessary to save the division. It is why Ford has already announced launching another attempt to "save" the luxury division. Some particularly negative analysts have gone as far to say that the division is a goner if the newest attempt does not make it. I think that is too negative as Ford does not want to give up on the luxury market - that is a big market to lose completely. I think they will keep trying. Just right now, the Lincoln recovery is a bit behind Cadillac's recovery.

  • Report this Comment On August 08, 2013, at 4:56 PM, JCADDYNYC wrote:

    Comparing the ATS to the MKZ is like comparing apples and islands. As a new ATS owner, Lincoln didn't even come close to my consideration set - It was strictly between BMW, Mercedes, Audi and Caddy.

    Ford may be doing well with its core brand, but I'm surprised no one discusses what a MISTAKE Ford made when it sold Jaguar and Range Rover. Those luxury brands could have really helped Lincoln from a platform and technology perspective ... not to mention they were sold WAY below market value and are currently outselling Lincoln by miles. America's loss was Asia's gain - Ford gave China global distribution via Volvo, and India via Jaguar - long term not a good strategy for either GM or Ford.

    Granted the bailouts were unpopular, but Fords rash decision to shed ALL of its globally renown brands to keep their taxi brand alive was short sighted. Cadillac at minimum is rolling out new platforms not shared with Chevy. Lincoln has to forego its fancy Taurus outfit and completely redesign its overall look if it wants to command something other than indifference from luxury car buyers. Until that happens, its a fleet/taxi car at best - they are just ugly ugly cars. What a shame.

  • Report this Comment On August 08, 2013, at 7:58 PM, AmericanFirst wrote:

    Acura,

    Just to set the record straight for JUNE - MKZ (3,490), ATS (3,459).

    Jcaddynyc - Your name fits your response. Ford did what they needed to do to finance their business without governrment / taxpayer assistance as GM $50B in bailout funding, $45B tax benefits (awarded by the Treasury Dept), fleecing bondholders for $30B, associated $B's in interest income, pensions funds for $B's. For doing the right thing, Ford has been rewarded by the public with more profits and market share increases than GM Ytd. Again, don't under estimate Alan Mulally. .

  • Report this Comment On August 11, 2013, at 11:58 AM, LungsOfSteel wrote:

    America, you are delusional. Are you one of those people who like Ford because "they didn't take government money" [a lie, of course]?

    You haven't implied a thing other than you merely look at charts and graphs and then think you know about cars.

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