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This GM Debut Is a Big Deal

By John Rosevear - Updated Apr 7, 2017 at 1:42PM

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The reviews on the new Cadillac ATS are glowing. That's big. Here's why.

What do casual observers see when they look at General Motors (NYSE: GM)? Most probably see a big relic of a company with a hit-or-miss product lineup, high-profile troubles in Europe, and a reputation that has seen better centuries, for starters. Add into that the lingering public resentment over GM's bankruptcy and bailout, and it seems clear that the General has a lot of work to do to catch up to its revitalized crosstown rival, Ford (NYSE: F).

But here's what those casual observers miss: That work is happening. It'll be a few years (at least) before GM is where CEO Dan Akerson would like it to be, but every now and then, investors can see a sign that GM really is on the right track -- that the old General really has changed.

One of those signs popped up on Monday. And while it might not seem like a big deal to many investors, I think that anyone interested in GM's prospects should be paying very close attention.

It's a new Cadillac. So what?
Automakers launch new models all the time, and most of those launches are pretty routine. In a way, so is the launch of the new Cadillac ATS, a compact sedan aimed squarely at BMW's (NASDAQOTH: BAMXF.PK) much-lauded 3-Series: There are catchy ads and a big social-media presence and plenty of flattering photos. And, as usual, there was also a test-drive event where auto writers were fed great food and put up in a luxury hotel and invited to test-drive perfectly prepped examples of the new car under carefully managed circumstances, all in hopes of great reviews.

Those reviews appeared Monday morning, and they were glowing. Motor Trend said, "The Cadillac ATS is shockingly good," and that general sentiment was repeated throughout much of the automotive press -- even in quarters that aren't traditionally very friendly to GM.

That's a big deal. Why? Simple: GM -- for once -- set out to do something really audacious, and it appears to have succeeded. See, the BMW 3-series isn't just good, it's the gold standard -- the near-perfect combination of performance and practicality, the car many professional auto reviewers choose for themselves.

I've said before that this segment -- compact luxury sedans -- might be the hardest one of all to compete in. It's not just that the 3-Series is such a polished gem, it's that the few cars that have managed to compete with it over the years -- Volkswagen's (NASDAQOTH: VLKAY.PK) Audi A4, Toyota's (NYSE: TM) Lexus IS -- are also vehicles that have been executed to an extraordinarily high standard. GM has never had anything close.

It's true that the ATS, which should start showing up at dealers in a month or so, isn't going to make a huge impact on GM's bottom line. The company hopes to sell 50,000 of the compact sedans a year, roughly the number of pickups it sells in a good month. But just the fact that it exists is significant. GM has never before been able to credibly compete in this segment, but its bold plans for the long-term future of Cadillac require a car like the ATS. If the reviews are to be believed, GM has gone where only a few elite automakers have managed to go before.

One more small sign of a big change
That's a big change from just a few years ago, when GM was content to offer marginally competitive products and use big discounts to grab buyers. That strategy gave GM decent-looking sales numbers, but it also crushed the General's margins. Worse, over time GM's customer base and market share eroded. We know how that story ended. Akerson and his team are determined to write a new one.

GM still has a long way to go to win back the buyers it lost during its decades of mismanagement. It'll be another few years before the last of the company's pre-bankruptcy products are revamped, and it'll take even longer for the public (and possibly for the stock market) to catch on to the change.

But the only way -- the only way -- GM will be able to succeed over the long term will be with great products. Many observers didn't think GM had the talent or resources to create truly great cars anymore. But with its recent products -- cars like the Chevy Cruze, and apparently now the new ATS -- GM has shown that it really can compete with anybody. And more to the point, the ATS is another sign that GM is now determined to compete with everybody.

You don't think GM has changed? Think about that.

GM's stock, currently hovering near its post-bankruptcy low, could have significant upside in coming months, as new products like the ATS hit showrooms and improvements continue around the world. However, investors need to stay attuned to fluctuating demand and the ability of automakers, like GM and Ford, to respond in unison. For starters, one of our top equity analysts has compiled a premium research report with in-depth analysis on Ford's competitive edge. To find out what could propel Ford down the road, get instant access to this premium report now.

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