As the U.S. economy continues its gradual rebound, it's mirrored by a surge in automotive sales. That news is to the delight of Detroit rivals Ford (F 2.33%) and General Motors (GM 2.19%). Ford's having great success with its fuel-efficient vehicles such as the Fusion and Focus. It's also enjoying record sales with the Escape and Explorer. One thing that GM has over Ford – by far – is a luxury lineup that's actually selling: Last year the Escape more than doubled the sales of the entire Lincoln brand – ouch. Let's see what's going on with the Cadillac lineup and why it's important for investors.
All about the bottom line
Obviously it's important to increase the top-line revenues, but the bottom line is what you take to the bank and is much more important. The biggest profit makers for Detroit automakers are pickup trucks. That's not a trend likely to change anytime soon. That said, luxury vehicles represent higher dollar values and better margins than your standard vehicles. In addition to that, luxury brands offer incremental sales to automakers. If Ford actually had a Lincoln brand that sold anything, it wouldn't compete with its other hot selling vehicles – like the Fusion.
While the Lincoln MKZ had more hype than any Lincoln since the Navigator, the launch was completely bungled by Ford. Quality inspections took too long causing months of delays. While Ford struggles to correct its mistakes, the Cadillac line is enjoying its spot in the sun. The Cadillac ATS helped drive a 49% sales increase last month – pretty impressive. It's been a hit with the consumers, and it's also been bringing in the exact target audience.
"It's a pretty diverse group that's coming through the door now," said Sewell, who owns four Cadillac dealerships in Texas. "The new ATS is bringing in the ideal buyer: younger and better educated."
Not slowing down
The ATS has been a hit with consumers but GM isn't stopping there. It's rolling out 10 new models by 2105 and continues to impress critics with most of the redesigns. At the 2013 Detroit Auto Show the ATS was named the "Car of the Year". Recently at the New York Auto show the CTS sedan garnered quite a bit of attention as well. These new models are incredibly important to the bottom line and GM intends to bring that cash home. CEO Dan Akerson set forth a goal to boost operating margins in North America up to 10% from 7.4% by mid-decade. That's great news for investors who have been quick to point out GM hasn't been as profitable as desired and is a step behind rival Ford in operating efficiency.
Not the same GM
I understand it takes time to reverse the impression consumers have from years of terrible GM vehicles. Things have changed, both Ford and GM are producing cars people actually want to buy. The quality has been ramped up as well. Consumer reports went as far to say that the Cadillac ATS was one of the best it had seen from GM.
The Cadillac brand is the fourth-best-selling luxury line in the U.S. but will have to convince consumers this is a renewed and quality lineup. Over the next couple years it could have a chance to break into the top three – something it hasn't accomplished since 1999. Watching Ford and GM's luxury brands over the next three years will be an important factor in their profitability. As it looks right now, GM has a huge leg up on its Detroit rival.