The Corporation: STRATEGIES
A CADDY THAT'S NOT FOR DADDY
In the luxury-car business, where success hinges on luring affluent younger buyers, General Motors Corp.'s Cadillac Motor Car Div. is something of an industry joke. After all, with the average age of buyers of some models nearing 70, repeat business looks dicey. "Cadillac dealers often joke that instead of a first-time-buyer program, we need a last-time-buyer program," says Christopher J. MacConnell, president of Thomson-MacConnell Cadillac in Cincinnati.
GM, however, isn't amused. The dearth of younger buyers means big problems for Cadillac, GM's smallest division. Although rivals such as Lexus, BMW, and Infiniti have seen sales accelerate since the late 1980s as they've grabbed a bigger piece of the $45 billion luxury-car market, Cadillac is stalling out. Since peaking at 351,000 cars in 1978, Cadillac sales have been sliding steadily. This year, they plummeted 15%. With expected sales of just 175,000 cars in 1995, Cadillac's share of the roughly 1.2 million-unit luxury market is now 15%, down from 24% in 1989.
To reverse its tailspin, Cadillac is betting on the Catera, a new entry-level luxury sedan it will unveil in early January. Industry sources say it's a make-or-break car: If the Catera draws the baby-boomer buyers who now flock to Cadillac's German and Japanese rivals, the American nameplate's luster will be restored. But if it doesn't, Cadillac's future looks bleak. "Unless they dramatically change their image and their product line, they're going to continue their decline," warns Christopher W. Cedergren, senior vice-president of consultant AutoPacific Group Inc. in Santa Ana, Calif. "This is their last shot."
MARKET SWING. That's because the Catera is aimed straight at the fastest-growing slice of the market: entry-level luxury cars such as the BMW 3-series, Mercedes C-class, and Lexus ES 300. Typically bought by aging boomers, they range from $28,000 to $35,000. Just 25% of the market in 1991, such models account for 39% of all luxury cars today and are expected to command nearly 50% by decade's end. Until now, that trend has spelled demographic doom for Cadillac. The company, which still gets most of its sales from the boxy Deville, has had nothing to offer boomer buyers when they first trade up.
The Catera is meant to fill that gap. But coming late to a crowded market, Cadillac faces a big stretch. While the average Caddy buyer is 65, buyers of entry-level luxury cars average just 44 years old. Most are college-educated women, while Cadillac attracts overwhelmingly male, high-school-educated drivers. That's one reason rivals seem unfazed. Jim Press, U.S. sales head for Lexus, thinks the Catera is more likely to lure owners of other domestic cars: "I don't see this as a significant threat to Lexus." Concedes GM Chief Executive John F. Smith Jr.: "They've got a lot of work to do to make it happen."
After much internal discussion and delay, it was only when Smith took over North American operations in 1992 that GM decided Cadillac needed a new entry-level car aimed at import lovers. Smith asked the European engineers who had just designed the new top-of-the-line Omega for GM's Opel division to quickly turn out a Cadillac version on the same chassis. But the soaring mark has since made the strategy expensive. At current exchange rates, Cadillac executives admit they'll lose money on the German-built vehicle, which is expected to sell for around $33,000 when it hits showrooms next fall. Nevertheless, the resulting Euro-styling gives the Catera a tauter ride and more nimble handling than any Detroit-bred Cadillac. The Catera has drawn praise for its driving performance from auto-buff books, though most are lukewarm on its styling.
STRIKEOUTS. Cadillac's previous attempts to move away from its clunky luxo-barges offer little reason for optimism. Competitors eagerly recall what happened in the 1980s, when GM sold a gussied-up Chevrolet Cavalier compact sedan as a Cadillac Cimarron. "When Cadillac goes small, volume goes small," said George Borst, a Toyota Motor Corp. executive then running Lexus, last winter. And Cadillac's earlier attempt to win young sophisticates was another debacle. The division spent six years tinkering with the Allante, an underpowered, defect-plagued convertible selling for $54,000-plus, before GM pulled the plug in 1993. Cadillac General Manager John O. Grettenberger swears such mistakes won't reoccur: "Catera will be right for the market segment right out of the box."
Well, almost. Catera will be launched without side airbags, a new feature beloved by safety-conscious yuppies. By next fall, side airbags will be available on Volvos, Lexuses, and Lincolns, but Catera won't offer them until the following April. The Catera launch team also promises repeated inspections of the car in the U.S. and Germany to eliminate the quality snafus that damaged Allante's reputation. "The last thing I want is for you to get your new Catera and have a problem in the first week," says Catera brand manager Dave Nottoli. "That would be the kiss of death." But his efforts were hardly helped by GM's Dec. 1 announcement of a $45 million recall of 470,000 Cadillacs for violations of emissions standards.
Coming up with a better car is only half the battle. Caddy's biggest challenge may simply be persuading younger buyers to consider a Cadillac. "You don't want to drive your parents' car," says Pam Casey, 36, a San Mateo (Calif.) lawyer whose father and grandparents were Cadillac owners. "It's an image problem." Still, though she and her husband own a BMW 325i and a Mercedes 300E, she'd consider a Cadillac if styling and performance improved. "I'd give them a look," she says.
To lure buyers such as Casey into showrooms, Cadillac plans to invite import owners to test-drive a Catera next spring and summer. Catera managers are also working hard to whip Cadillac's 1,600 independent dealers into shape. Insiders concede they face big problems there, too. Justly or not, many younger buyers see Cadillac dealers as epitomizing the old-line, hard-sell style, complete with salesmen in white belts and plaid sportcoats.
To meet the high standards of younger customers, dealers who want to sell the new car will have to polish selling skills at Catera College. And GM will ship Cateras only to dealers who meet stiff standards for customer satisfaction and service. Among the tactics Cadillac is exploring: no-haggle pricing in the style of GM's Saturn division.
To support its marketing, Catera got the first of 35 new brand teams GM is setting up. The brainchild of GM's new marketing chief, Ronald L. Zarrella, these teams will focus on marketing individual models rather than entire divisions, such as Pontiac. So far, execs will say only that Catera's ads will aim for as much attention-getting irreverence as tradition-bound Cadillac managers and dealers can stand. "We've got to be in their faces," says Dan Golles, Catera's product-planning manager, who acknowledges that the process may take years. "We know we won't always get them on the first try."
Indeed, though industry observers say the new car is a big improvement, it's only a start. "The Catera will help, but only incrementally," says David Bradley, an analyst at J.P. Morgan Securities Inc. "If you need 10 steps to get there, this is half a step." Cadillac's long-term aim is to establish Catera well enough so that its next generation car, which will arrive early in the next century, can replace the Deville as Cadillac's mainstay. But if Catera doesn't win some younger buyers quickly, Cadillac will by then be too far behind to amount to much more than the butt of industry jokes.By Kathleen Kerwin in Detroit