You may not have been paying attention, but something big is happening to Cadillac.
Cadillac was once the great American luxury-car brand, but for many years it has kind of been a joke, one more symbol of how far General Motors (NYSE:GM) has fallen since its heyday.
But lately, Cadillac has been posting some big sales gains, thanks to some surprising new products. It's all part of a long-term plan to make Cadillac a true global rival for BMW (OTC:BAMXF) and Mercedes-Benz -- a plan that is among GM's highest-priority projects.
Nothing is more critical to that plan than the all-new Cadillac CTS, set to hit dealers this fall. Here's why.
Why Cadillac's revival is a huge priority at GM
GM held its Global Business Conference last week, an annual event where the company goes into great detail about its key strategies and upcoming products. It's a closed-door meeting for Wall Street analysts only, but media folks are allowed to listen in by phone.
I was one of those media folks, and one of the big takeaways from the meeting is that GM's effort to revive Cadillac is a huge, huge deal, driven by a hard-headed business case. That case starts with this: GM sells cars and trucks all over the world, but for many years, much of its profits came from pickup and SUV sales here in the U.S.
That's true at rival Ford (NYSE:F), too -- in fact, Morgan Stanley auto analyst Adam Jonas said last year that as much as 90% of Ford's profits might come from pickups. The proportion is likely considerably smaller at GM, but it's still huge -- too huge for GM CEO Dan Akerson's comfort.
Akerson is a Wall Street veteran who joined GM after its 2009 bankruptcy. He wasn't part of the team that drove GM into the ditch. That means his perspective is different from many Detroit insiders, and it means that he's more willing than many to question the industry's status quo -- and in some ways, more able to see things that insiders miss.
One of the things he saw was a company that was too dependent on the U.S. pickup truck market. Another thing he saw was rival Volkswagen (OTC:VWAGY). VW's profits dwarf GM's -- and nearly half of those fat profits come from VW's successful luxury brand, Audi.
Akerson put two and two together and saw that turning Cadillac into a top-shelf global luxury brand would increase GM's profits while decreasing its risk -- something any CEO would like.
But he also knew full well that Cadillac's journey would be a long, hard road. That's where the new CTS comes in.
Why the CTS needs to be excellent
Arguably, the first step on that road came last year, with the compact Cadillac ATS sedan. The ATS was aimed squarely at BMW's 3-Series, one of the finest cars made -- and to the shock of many longtime GM critics, the ATS hit the mark.
Reviewers praised its light weight, fine handling, excellent interior, and overall impression of quality. ATS sales have helped drive big sales gains for Cadillac -- the brand is up more than 37% so far this year, its biggest gains since 1976.
But now comes the bigger challenge: Moving up from there. The ATS is essentially an entry-level luxury car. For Cadillac to have the kind of global credibility it wants, it needs to show that it can play at the higher levels, too.
GM hopes that the CTS is the car that will make that point loud and clear. It's bigger, far more plush, and starts at about $6,000 more than the mostly well-regarded outgoing model, changes that aim it squarely at Mercedes' E-Class and BMW's 5-Series sedans.
On paper (and in photos, as you can see), it looks great -- more formal than the old car, but still very Cadillac. It carries Cadillac's edgy and controversial "Art & Science" styling forward, but in a more subdued and sophisticated way than its predecessor. Inside, there's good leather and nice wood and a surprisingly long list of color choices and options.
There's a lot of technology, too, including quite a bit that is aimed at weight reduction. Low weight is one of the factors in the ATS's success: All other things being equal, lighter cars handle better, accelerate faster, and get better fuel economy.
On that front and many more, GM is hoping to replicate the ATS's success with the new CTS, but at a higher level.
A very big step forward on a long journey, if it succeeds
Even if it's a smash hit, the CTS isn't going to make Cadillac a global contender all by itself. But it's an extremely important step in the journey: GM is hoping to show that the ATS was no fluke, but just the first in a new lineup of vehicles that will make critics and consumers take Cadillac seriously for the first time in a generation.
If the CTS is successful -- and it looks very promising from here -- then that will lend credibility to the Cadillac comeback and raise expectations for the next Cadillac sedan, the much-rumored full-sized "flagship" that is expected in a couple of years. It's expected that GM's goal with that car is to outdo Mercedes' big S-Class, long the benchmark for the very idea of a full-sized luxury car.
If GM can pull that off, then Cadillac will be in a very good position to achieve Akerson's growth and profitability goals for the brand. But the CTS is the critical step in getting from here to there, and that's why GM shareholders should be watching its launch very closely.