General Motors (NYSE:GM) confirmed on Tuesday that its Cadillac brand would become a separate business unit, with its own headquarters -- not in Detroit, but in New York.
It's a dramatic move for the brand, unprecedented in GM's history. And it caused some consternation in Detroit, which is trying to hold on to all the business it can.
But it could be a bold and important step forward for GM's long-term plan to turn Cadillac into a peer of the world's great luxury-car brands.
One of Detroit's oldest car brands is headed east
Few brands are more closely associated with Detroit than Cadillac. The brand is actually named after Antoine de la Mothe Cadillac, the French explorer who is credited with founding the city of Detroit in 1701. Cadillac's early history is intertwined with that of Ford (NYSE:F) and Ford's Lincoln brand, among other iconic Detroit companies and personalities.
But now, GM is saying that the brand's future is in New York. General Motors global product chief Mark Reuss defended the move on Tuesday, saying it's time for "some fresh thinking" at GM's old luxury brand, according to a Detroit News report. What's that about?
Simply put, it's about taking the next step toward turning Cadillac into a credible global luxury brand -- following a map familiar to Cadillac's new president, Johan de Nysschen.
De Nysschen came to GM from Nissan, where he had been in charge of a similar luxury-brand-building exercise for the Infiniti brand. Before that, he spent many years at Volkswagen Group's (NASDAQOTH:VWAGY) Audi brand -- and he is given much credit for elevating Audi to the top tier of luxury-car brands.
Under this new plan, Cadillac's brand-specific operational teams -- sales, marketing, senior management, and so on -- will move to a new headquarters in New York City, probably in the Chelsea district of Manhattan.
Reuss noted on Tuesday that plenty of Cadillac-related jobs will stay in Michigan. Manufacturing won't move, nor will the technical product-development teams that work on Cadillacs (and other GM vehicles).
But the brand will move to New York, and it will also move to a separate financial reporting structure, as a wholly owned GM subsidiary.
It's very much like Audi's relationship to Volkswagen. Audi is wholly owned by VW, but it is organized as a subsidiary, with its own headquarters in a different city. That arrangement has helped Audi free its products from association with more pedestrian VWs, even as Audis share many parts and engineering "under the skin" with the parent company's mass-market models.
A move taken from the road map that rebuilt Audi
That's really what this is about. It has been clear for a while that building great cars that could go head-to-head with those from BMW (NASDAQOTH:BAMXF) and Daimler's (NASDAQOTH:DDAIF) Mercedes-Benz would not be enough to make Cadillac a serious contender for the world's luxury-vehicle buyers.
While the latest Cadillacs like the CTS sedan are excellent, owners of BMWs and other German luxury cars aren't giving them much consideration yet. That's because the Cadillac brand still lacks the cachet of BMW, Mercedes-Benz, or Audi. At the same time, many longtime Cadillac customers have been turned off by the big price increases that accompanied the brand's much-improved new models.
De Nysschen clearly believes that separating Cadillac's brand-building efforts from GM's bureaucracy -- or put another way, putting those efforts exclusively in the hands of people who know how to build and maintain premium global brands -- is the best way forward. And New York, long a base for many luxury brands, is where Cadillac can find and retain those people.
That makes a lot of sense. So what else is in the cards for Cadillac?
How Cadillac's new chief will "reposition" the old brand
De Nysschen recently told Automobile Magazine that his goal is less to "elevate" Cadillac than it is to "reposition" it, with an eye toward the younger buyers who are increasingly moving to premium brands.
Those buyers have been flocking to premium crossover SUVs such as BMW's X3 and Audi's Q5; it's fair to expect that Cadillac will expand its own crossover lineup, with models below and above its current midsize SRX.
There are also new engines on the way: A new "modular" GM engine family will include a high-tech V8 that will be exclusive to the Cadillac brand; the 4.5-liter DOHC V8 in last year's Cadillac Elmiraj show car might have been a preview. And de Nysschen recently hinted at more new models for Cadillac at the high end of the range, possibly including a high-tech sports car.
Yes, GM really is serious about this Cadillac thing
I think GM shareholders should think carefully about the implications of this move. I've been arguing for a while that GM really has changed, at least at its most senior levels, and that the company is willing to make bold moves that would have been totally out of character for General Motors as it existed a decade ago.
This latest move to separate Cadillac from the automaker's Detroit bureaucracy (and GM's financials) certainly counts as bold. To succeed, GM will need to stick to this course even if Cadillac's sales fall for a time -- and de Nysschen's vision for Cadillac will have to resonate with luxury buyers,
But if management can pull it off, Cadillac could accomplish something that plenty of "experts" have declared impossible: giving BMW, Mercedes, and Audi some serious global competition.
John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends BMW, Ford, and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.