Cadillac Hits The Gas

GM is spending big to revive the brand, but is it too late?

When you think Cadillac, what image comes to mind? Two seniors tooling around Palm Springs, Calif.? That might be Cadillac now, but a face-lift for the sagging luxury brand is in the works. "We're one of the hottest places in General Motors and in the industry," insists Cadillac General Manager Michael J. O'Malley.

Admittedly, there is more than a dollop of wishful thinking in O'Malley's pitch. But there is no doubt that General Motors Corp. is making a significant commitment to the erstwhile leader of luxury sales, pledging to spend $4.3 billion over the next four years to update and expand the Cadillac brand. That's 15% of GM's capital budget aimed at a division that accounts for just 4% of sales. By 2004, there will be as many as nine models, up from the current five. They will boast more powerful engines, sportier handling, and the edgy styling of the Evoq, Cadillac's new two-seat roadster which will debut in 2002 under a new, yet-to-be-determined name. It will be based on the high-performance hardware of the next-generation Corvette.

The move comes none too soon. Cadillac has been losing ground for the past three years with flat or even slightly down sales. The No. 1 U.S. luxury model until 1997, Cadillac lost that crown to Lincoln the next year. Now, it clings precariously to the No. 3 slot, trailing both Lincoln and Mercedes-Benz, with Toyota Motor Corp.'s Lexus line nipping at its heels.

DYING OFF. That's not surprising. With the average Cadillac buyer now 67 years old, the brand's core market is literally dying off. Even with lower prices than Mercedes, BMW, and Lexus, Cadillac has seen young buyers flock to cars with European flair and better performance. "This is the best strategy Cadillac has had in two decades," says Christopher W. Cedergren, an analyst at marketing firm Nextrend Inc. in Thousand Oaks, Calif. "Whether it works remains to be seen."

The plan certainly has risks. Cadillac's new design is controversial and could take time to catch on. But Cadillac brass is undaunted, with plans to launch a raft of new models in the next couple of years. Among them: a car-based sport utility in 2002 as well as next year's Cadillac version of the Chevy Avalanche SUV and the all-new Catera sport-luxury sedan. While the old Catera was modeled on the stodgy European Opel Omega, the new Catera is being completely redesigned.

These new designs must strike a chord with younger buyers if Cadillac is to survive. After all, if GM can't lure them now, it could be even tougher to get them to trade up later in life. "They're taking on the most successful auto makers in the world," says Merrill, Lynch & Co. analyst John Casesa. "It will only work with excellent, flawless execution." If this overhaul fails, Cadillac itself may be ready for retirement.

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