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Can Cadillac Really Compete With Mercedes and BMW?

By John Rosevear - Apr 14, 2013 at 8:20AM

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Luxury cars are a big and profitable business, and GM wants a bigger part of it.

The all-new 2014 Cadillac CTS is set to arrive at U.S. dealers this fall. Image source: General Motors.

General Motors (GM 3.07%) CEO Dan Akerson didn't know a whole lot about the auto business when he joined the auto giant's board in the wake of the company's 2009 bankruptcy. But it's clear that he's learned a lot since. One of the things he's learned is that automakers with strong global luxury brands make more money. That's because luxury cars, generally speaking, sell with fatter profit margins than regular cars.

Making more money is of great interest to Akerson these days. GM has been solidly profitable for a while now, but its profits haven't been as strong as Akerson and GM's shareholders would like. More to the point, they haven't been nearly as strong as those at GM's global peers Toyota (TM 0.79%) and Volkswagen (VWAGY 2.01%), both of which have strong luxury brands: Toyota's Lexus and VW's Audi.

GM, meanwhile, has Cadillac. But more and more, this isn't your grandfather's Cadillac. GM is making a big push to turn Cadillac into a no-excuses global luxury-car contender.

A surprising product revival, with global aims
Recent Cadillac models, like the all-new CTS (shown above) that GM unveiled last month, have shown that GM is putting some deep thought and serious global sophistication into its once-tired luxury brand.

Gone are the tufted velour seats, pillowy rides, and white vinyl roofs of retirement-community Cadillacs of yore. The latest Cadillacs are serious luxury cars in the modern idiom, combining lush interiors with sporty handling -- and, increasingly, materials and build quality that rival the great German luxury brands.

One by one, the cars that Cadillac will need to be truly competitive with the likes of BMW (BAMXF 0.76%) are coming. Last year's ATS sedan was GM's first-ever serious competitor to BMW's much-lauded 3-Series -- and some reviewers were shocked by how well the ATS turned out.

Now comes the CTS, first shown in New York in March and expected to arrive at dealers this fall. Reviewers haven't had a chance to drive it yet, but it looks -- on paper and in the metal -- like another big step forward for the brand. Next up: The ELR coupe, a sporty and luxurious cousin of the Chevy Volt, and an all-new replacement for the big Escalade SUV, due next year.

After that, things could get very interesting. Rumors hint that GM has a series of big Cadillacs under development, to be built on a new rear-wheel-drive platform designed to match or beat cars such as the vaunted Mercedes-Benz S-Class. Those cars could start to appear by mid-decade, and at that point Cadillac could be ready to go head-to-head with the best in the world -- all over the world.

Meanwhile, GM is already laying the groundwork for that moment in other areas.

A new global organization for a very American brand
GM announced on Friday that it had promoted Don Butler, the well-regarded U.S. marketing chief for Cadillac, to a new position as vice president of Global Cadillac Strategic Development. In that role, GM said, Butler will "drive the next phase of Cadillac growth internationally, including new market development and strategic global planning."

GM also said it had hired Steve Majoros away from ad agency Campbell-Ewald to be Cadillac's global marketing director, reporting to Butler.

These moves may sound like the auto-industry equivalent of inside baseball, but they show that GM is preparing to make a big global push for its suddenly up-and-coming luxury brand.

What does "global" mean? It certainly means China, where Cadillac is a tiny presence now -- but where GM has said that it expects to have 10% of the luxury-car market by the end of the decade. That won't be easy, as the German "Big Three" of Audi, BMW, and Mercedes are already dominant players in China, with about three-quarters of the market. Bbut it's critical to GM's long-term goal of making more money out of its leading position in the world's largest auto market.

GM is also expected to make a significant push to establish Cadillac in Europe. That may sound like a futile mission, but GM Europe executive Susan Docherty said in February that GM's research suggests that "validation" in Europe may be key to wider acceptance in Asia.

So can Cadillac really compete with the likes of BMW?
I think the brand can get compete, given two things: patience, and cars that are That Good.

Akerson isn't known for his patience, but the GM executives leading the Cadillac revival have been careful to speak in terms of long-term goals. I think the company is willing to give this effort the time it needs.

As for the cars, already the CTS looks to be a step forward from last year's very good ATS. If the next Cadillacs continue that trend, the brand might very well find itself worthy of its old tag line: The Standard of the World.

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