For several years now, General Motors (NYSE:GM) has been hinting -- loudly -- that it has grand ambitions for its frayed old luxury brand, Cadillac.
We've seen those ambitions move forward in fits and starts. On one hand, after decades of Cadillac products that might best be described as "lousy," the brand now has a couple of extremely good vehicles to sell.
Cadillac's latest models, the ATS and CTS sedans, are superb products. They're well-built, fun to drive, and compare quite well with the best from the big three German luxury brands.
But on the other hand, Cadillac's U.S. sales are down 9.6% this year through October -- and the brand's sales in overseas markets don't yet amount to a whole lot.
And recently, GM has made a series of mystifying moves with its old luxury brand, including one that caused great consternation in GM's hometown: Cadillac is packing up and moving to New York.
What's all this about? As Cadillac's new president explained in a recent presentation to Wall Street analysts, there's a method to GM's seeming madness -- and it makes a lot of sense in context.
Cadillac's new boss has very big plans for the brand
Cadillac president Johan de Nysschen joined GM in August after a stint running Nissan's (NASDAQOTH:NSANY) Infiniti luxury brand. Before that, he spent two decades at Volkswagen's (NASDAQOTH:VLKAY) Audi luxury brand -- and he clearly learned a great deal from that brand's (successful) efforts to rise to the top of the global luxury-car business.
De Nysschen's presentation at Barclays Global Automotive Conference last week began with what he called a "candid assessment ... of the state of the Cadillac business."
As he sees it, one of the biggest reasons for Cadillac's long stint of mediocrity has been its place in GM's brand hierarchy -- specifically, that GM people see it as just one of several GM brands.
Premium brands require very different strategies and considerations than mainstream brands, he said. And while GM has plenty of "very smart people," those people are "rooted in the needs and requirements for success in the mainstream business," not the premium business.
How GM's organization has held Cadillac back
What does that mean? "The reality is that the company [GM] is organized by function, and the functions work across all brands," de Nysschen said.
Now this may in principle be fine, and you can achieve a great deal of synergy. And it works particularly well when you've got brands that are Chevrolet, Buick, and GMC positioned more or less in the mainstream part of the business. But imagine what we are asking the fine men and women of General Motors to do. We say to them, please start your product planning discussions, your marketing planning discussions and your network development discussions, your distribution discussions with a full agenda.
De Nysschen continued:
In the morning, you cover all the brands, and somewhere about 3:10 in the afternoon, you get to Cadillac. And now we expect them to do a 180 degree shift in terms of the insights and understanding of the competitive environment and in terms of the application of particular strategies that are appropriate for that environment. It can't happen. What does happen is that you end up with a lowest common denominator approach that really is rooted in meeting the needs of the mainstream business. And if you try to run the luxury business the way you do the mainstream business, you will lose every time. And guess what: Cadillac hasn't been winning.
Cadillac doesn't need a divorce, but it does need a separation
There are two takeaways, here. First, luxury is different from mainstream. The audience is different, the competition is different, the market's expectations are different. To be successful, the brand has to be operated very differently, taking its customers and competitors into account.
Second, the difference has to be taken into consideration in lots of different areas -- but not all areas. Cadillac doesn't need dedicated engineers or factories, de Nysschen says -- but it does need its own product managers, its own marketing, and its own sales team. And all of those people need to be thinking of Cadillac, and only Cadillac -- if Cadillac is to compete with the German luxury giants on their own turf.
The problem is that, right now, nearly all of the people doing those jobs for Cadillac are also doing the same jobs for Chevrolet, and Buick, and GMC.
That contrasts sharply with the situation at de Nysschen's former employer, where Audi is a wholly owned subsidiary with a separate headquarters and staff: "Nobody at Audi works part-time on VW. They are absolutely dedicated to the Audi business."
The upshot: A new headquarters for Cadillac
De Nysschen only joined GM in August, but he wasted no time getting GM's board to approve a similar arrangement for Cadillac. The General has already announced plans to separate Cadillac from its core business. Cadillac will have its own headquarters -- in New York, not Detroit -- its own staff, and in time, will report its quarterly financial results as a separate business unit, a GM subsidiary.
That's a stunning move for a company famously resistant to change. And in and of itself, the move won't be nearly enough to complete the Cadillac revival. But de Nysschen sees it as the next necessary step -- and he has hinted that there are more stunning moves to come. Stay tuned.
John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. 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.