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The Cadillac and Lincoln Luxury Brands Are Ready for Growth

By Adam Levine-Weinberg - Jul 9, 2019 at 6:12PM

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A slew of new models -- particularly crossovers -- should drive solid growth at Cadillac and Lincoln over the next couple of years.

Two decades ago, General Motors' ( GM 0.22% ) venerable Cadillac brand and Ford Motor's ( F 0.42% ) Lincoln brand were the top two luxury auto brands in the domestic market. But since then, the Detroit auto giants' luxury divisions have fallen on hard times. Lincoln in particular has seen its sales numbers in the U.S. plunge by more than 40% since the late 1990s, even as the market has grown overall.

However, Ford and GM have invested heavily in reviving their luxury divisions in recent years, preparing an onslaught of new models to boost market share. These efforts could start to pay off very soon.

Cadillac expands and updates its portfolio

GM attempted to relaunch the Cadillac brand near the beginning of this decade. However, most of the new models it designed were sedans. That proved to be a poor choice, as consumers have increasingly favored roomier crossovers and SUVs. As recently as a year ago, Cadillac had just one crossover and one SUV model in its portfolio.

That's finally changing. Last fall, the Cadillac XT4 compact crossover went on sale. It quickly became the segment leader, with more than 7,000 U.S. deliveries in the first quarter of 2019 and more than 7,000 deliveries again last quarter.

An orange Cadillac XT4 parked in front of a beach

The Cadillac XT4 already leads its segment in sales in the U.S. Image source: General Motors.

As expected, the Cadillac XT4 is cannibalizing sales of its larger sibling, the XT5, to some extent. Nevertheless, the net effect of going from one crossover model to two has been very positive for the brand. For example, Cadillac's total crossover sales rose 19% in the U.S. last quarter, more than offsetting a 20% decline in sales of its car models. The XT4 and XT5 now combine to account for more than half of Cadillac's U.S. sales volume.

These two models were joined by the Cadillac XT6 full-size crossover near the very end of June. As XT6 availability improves over the next few quarters, Cadillac's growth in the crossover market should accelerate.

While GM has thus addressed the Cadillac brand's long-standing weakness of having too few crossover models, it isn't abandoning the sedan market, either. Two new models are due out within the next year or so: the CT4 and CT5. Production and sales of the models they are replacing -- the ATS and CTS -- are already winding down. With fresh car models and a full portfolio of crossovers, Cadillac should be able to make big market share gains in 2020 and 2021.

Lincoln doubles down on the crossover/SUV market

Unlike Cadillac, Ford's Lincoln brand has offered three crossover models and an SUV for a long time. But until recently, many of those products weren't very compelling. Over the past couple of years, Lincoln has been fixing that issue.

A Lincoln Navigator parked in front of a building

Lincoln has started to upgrade its vehicle lineup. Image source: Ford Motor Company.

An all-new version of the Lincoln Navigator was received well by customers. U.S. deliveries of the model surged nearly 70% to 17,839 units last year. Lincoln also replaced its MKX midsize crossover with the new Lincoln Nautilus during 2018. The Nautilus has quickly become the brand's highest-volume model, outselling its predecessor by double-digit margins.

The well-reviewed Lincoln Aviator full-size crossover is arriving in dealerships this month, replacing the slow-selling Lincoln MKT. That represents a big sales growth opportunity for Ford's luxury brand. Another new model will follow before year-end, with the Lincoln Corsair replacing the MKC compact crossover.

Thus, Lincoln will have three fresh crossovers in its lineup by the end of 2019, plus the popular Navigator full-size SUV. Considering that it already gets more than 75% of its sales volume from crossovers and SUVs, this will position Lincoln for strong sales and profit growth next year.

What's next?

With so many new models having arrived within the past year or coming soon, Cadillac and Lincoln should be able to grow in the U.S. in 2020 and 2021, bucking the broader industry trends.

A key question for long-term investors is what Cadillac and Lincoln will do to maintain their momentum beyond 2021, as the current crop of new vehicles will be starting to age by then. One option would be to broaden their crossover lineups even further. Right now, neither brand has a subcompact crossover, and that is a growing segment of the luxury auto market. Cadillac and Lincoln also may invest in updating their existing models more frequently.

One thing is clear: If Cadillac and Lincoln sales rise over the next couple of years as expected, it will put GM and Ford in better position to make future growth investments in their luxury brands.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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