General Motors' Latest Struggles to Fix Cadillac

The Cadillac ATS posted strong sales last year, but it's down over 20% so far in 2014. That may be one reason Cadillac's U.S. sales chief abruptly left the company this past week. Source: General Motors Co.

General Motors  (NYSE: GM  ) has an interesting problem with Cadillac. The latest Cadillac models are very good -- so good that reviewers rate them as on par with, or maybe a little better than, the best from BMW  (NASDAQOTH: BAMXF  ) and Daimler's  (NASDAQOTH: DDAIF  ) Mercedes-Benz. 

But sales are down, and that may have led GM to fire its U.S. Cadillac sales chief this past week.

What's the problem? As Motley Fool senior auto analyst John Rosevear explains in this video, the problem may not be with Cadillac's cars and trucks -- but with the Cadillac brand itself. 

A transcript follows the video.

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John Rosevear: Hey, Fools. It's John Rosevear, senior auto specialist for The U.S. sales chief for the Cadillac brand is out of a job. General Motors confirmed this week that Bill Peffer has left the company "to pursue other interests" after just 10 months on the job. He will be replaced for the time being by Kurt McNeil, who is the overall head of GM's U.S. sales operations, while a permanent replacement is sought.

Now, this may sound a little bit like inside baseball, but there's a bigger story here that is important to GM shareholders, and that's that the Cadillac brand is really struggling this year.

Cadillac sales were up almost 22% last year, thanks to a surge in interest that was driven by new models like the compact ATS sedan, but through May of this year they're actually down 2.3%. And I think GM is really struggling to find the right sales and marketing formulas for the Cadillac brand. 

Cadillac is, of course, on a big global quest to become a peer, a true peer, of the German luxury brands, BMW and Mercedes-Benz and Audi, and while everybody acknowledges that that's a project that will take many years to pull off, it's starting to look like GM has gotten to the point in that project where they're not sure what to do next.

The thing is, Cadillac's latest new vehicles are really very good. The new CTS sedan is actually winning comparison tests against the BMW 5-Series, and the ATS is the first car that GM has ever built that could hold its own in terms of handling and build quality and interior luxury against the 3-Series.

And I can tell you that the all-new Escalade has come a long, long way from the outgoing model. It's a no-excuses luxury truck with a really amazing interior that puts the Mercedes SUVs and even the Porsche Cayenne to shame. It's the kind of interior Cadillacs should have had all along.

But that's kind of the problem.

After years of making cars that really weren't up to snuff, Cadillac finally -- finally -- has products that can compete with the Germans with no excuses. They're just that good. But the thing that's holding them back is that the Cadillac brand is damaged. It doesn't have the draw that BMW or Mercedes has. It doesn't have the status. A lot of BMW and Mercedes customers still feel like a Cadillac would be a step down, not an intriguing alternative.

And I think the churn we've seen in the U.S. sales organization is part of GM struggling to find the right formula for the Cadillac brand and to transmit it to their dealers, to get Cadillac dealers in a position where they can compete with Mercedes and BMW for customers. I don't think they're there yet. I think that's hurting them, and it will be interesting to see where they go from here. Thanks for watching.

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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 24, 2014, at 8:44 AM, AcuraT wrote:

    While I don't disagree with John Rosevear here, I do have a comment. GM fixed Buick's image with new cars and better quality, making it a fairly effective Lexus fighter. Why is it GM can put money into a dead division and bring it back to life (Buick sales are up another 11% this year for GM as of April, second only to Chevy at 14%) while Cadillac only gets one year of a boost when a new model launches?

    It is because while Cadillac is a damaged brand, Buick was not as badly damaged. At GM, when quality was terrible, they had to start somewhere. They started fixing it first with six sigma at their smallest divisions at the time - Saab and then Buick. People forget but Buick cars became better before Chevrolet, GMC, and Cadillac did. However, those who bought those Buicks did not forget - and they came back. So did others who found their new products "better" than in the past.

    Cadillac on the other hand has had bad electrical systems since the end of time. They have been bad for so long I cannot remember when in my lifetime they were any good. People have not forgoten that. So while their quality may have caught up now with Buick and the other GM divisions (Consumer Reports is showing steady improvement now as are other quality publications and websites), it may have been too late to save the brand. There are many who avoid Cadillac because of the fear of electrical issues - while that same fear does not exist at Buick.

    I took advantage of this situation and converted from Japanese products to GM products as of late in my own portfolio. I own a 8 year old Saab 9-3 with nearly no issues at all and 121,000 miles on it as well as a four year old Buick closing in on 50,000 miles and only recalls to deal with. The Saab has had its alternator replaced at 70,000 and the vacuum pump replaced at 120,000 - that is it. The Buick had a leaking water pump that GM identified as faulty and replaced it - but that is it for both cars.

    How does GM fix the Cadillac brand? It is going to take a lot of time and good cars - it is the only way to do it. They have to have good quality cars that last more than a couple of years before falling apart as Cadillac's electrical systems used to be known for. If they do it long enough, people will come back. Firing sales managers will not do anything as there is no quick fix for lasting brand damage from inferior product offering. Just ask AMC, Nash, Studebaker, and all the companies in the automotive graveyard.

  • Report this Comment On June 24, 2014, at 2:53 PM, eddoeboyeddie wrote:

    The new Caddy's are very well made, like the article say's, people are stuck on German Brands even Lexus is having a sales problem this year, when you can go into a Lexus dealer and buy a LS 450 for 15 thou off the sticker price, well that alone say's where they are, a few years back and that discount would have never taken place.

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John Rosevear

John Rosevear is the Fool's Senior Auto Specialist. John has been writing about the auto business and investing for over 20 years, and for The Motley Fool since 2007.

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