General Motors' Latest Struggles to Fix Cadillac

GM fires its Cadillac sales chief -- again -- as sales at the long-troubled luxury brand are once again sagging.

Jun 23, 2014 at 7:21PM

Images

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 fool.com. 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.

John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends BMW, Ford, General Motors, and Nike and owns shares of Ford and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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