Cadillac: Can GM Save an Icon?

Unless the luxury line recovers, the company stands to lose a lot more than a brand

It was the car of our dreams. From the rapier-sharp tail fins, lifted from the silhouette of a World War II fighter, to the missile-like projections on the sculpted front bumper, the 1950s-era Cadillac was the definition of class, status, and American Century optimism. It was what folks around the country aspired to--the tangible evidence of having arrived. Marilyn Monroe drove one. So did Dwight D. Eisenhower. Elvis bought them by the gross, and when he died, 12 white Cadillac limos led the procession. Perhaps never before or since has a single brand so spectacularly embodied the hopes and dreams of the consuming classes.

But Cadillac, the marquee nameplate of General Motors Corp. (GM ), has put on a lot of miles since those long-distant glory days. Lurching from design blunder to design blunder for more than two decades, the once-storied brand has descended from faded icon and butt of late-night jokes to something much worse: irrelevance. From near-total dominance of its market back in the '50s, when 8 out of 10 luxury cars sold in the U.S. were Caddies, the brand has sunk to fourth place, lapped by Mercedes, Lexus, and BMW. Last year alone, the division's sales fell by 9%. And no wonder. With an average age of 66, Cadillac's primary customer base is dwindling fast.

Cadillac, once a symbol of the very best in American technology and engineering, now exemplifies the decline of one of America's great companies. In the 1950s, when Cadillac was king, GM was the most valuable company on the planet and one of the most profitable the world had ever known. Its 1962 profits of $1.5 billion were more than three times that of its next-largest rival, Ford Motor Co. With a lineup that extended from Chevrolet to Cadillac, any family in America could find a car at GM. And most of them did, giving GM more than half the market.

Although still the world's biggest auto maker, GM has suffered a slide almost as precipitous as Cadillac's. Its share of the U.S. car market has fallen by nearly half since 1962, and profitability has become a sometime thing, with GM running up losses three times in the past decade.

Lately, though, GM is looking like it might be ready to shake itself out of its torpor. In 2001, it posted the strongest results in Detroit, something unimaginable just two years ago, thanks mainly to surging truck sales. While Ford (F ) and Chrysler (DCX ) struggled with losses, GM earned $601 million on sales of $177.3 billion last year. Even better, it recently boosted its first-quarter profit forecast by $110 million, to $660 million. Lately, GM stock, up 22% for the year, is even showing up on Wall Street buy lists. But pickups and sport-utility vehicles can only go so far. GM cannot remain the world's preeminent carmaker without a viable luxury car.

It's not just a gold-plated image that's at stake. Without a strong Cadillac leading the way, GM will have trouble revving up Caddy-era profit margins again. In a profit-challenged industry, an entry-level luxury car can earn an auto maker $3,000, compared with $500 for a midsize sedan. Top-of-the-line SUVs and sedans haul in $15,000 a pop. That's why Ford has built up a luxury stable that includes Jaguar, Volvo, and Land Rover.

Even more important is what defeat would say about GM's chances of maintaining auto leadership. Cadillac once stood for cutting-edge technology, offering some of the earliest air conditioners and automatic transmissions on the road. To let the nameplate go would be tantamount to admitting that GM can no longer lead in the design and construction of automobiles. "Cadillac is vital to General Motors because of what it represents about the company," says CEO G.Richard Wagoner Jr.

It's hard to overestimate the glow that a strong premium brand can impart. Cadillac's cachet helped attract customers to GM's entry-level Chevys, and as those customers prospered, the lure of Cadillac drew them up through the brand hierarchy of Pontiacs, Oldsmobiles, and Buicks. Customers who fell in love with the line decades ago are still among Cadillac's best customers--people like W.D. Farmer, 73, and his wife, Annette, from Atlanta. They bought their first Cadillac 30 years ago and have bought 10 more since. The latest: a DeVille DHS, with a bench seat and shifter on the column. Says Farmer: "It rides like a boat and has all the bells and whistles." That's the kind of loyalty marketers dream of, but unless GM can tap a new generation of fans to follow folks like the Farmers, Caddy will continue its inexorable decline.

That's why GM is finally getting serious about its beleaguered luxury division. After years of paying lip service to the importance of the Cadillac heritage, GM for the first time is putting some muscle behind an effort to revive the fabled brand. Over the past four years, it has quietly committed up to $4 billion in a campaign to restore Caddy to its rightful place in the auto firmament. That's 10% of GM's total capital budget for a brand that accounts for less than 4% of sales, or just 180,000 cars. In January, Cadillac introduced the CTS sedan, the first new model in a lineup of radically redesigned cars that will arrive over the next three years.

That the angular new styling was approved at all is remarkable. If legendary GM designer Harley Earl were introducing his flamboyant tailfins for Cadillac today, he would have a tough time getting the go-ahead in an industry that has become more reluctant to break the mold. Even at this stage, the approval problems aren't over. Just as the first of the new Caddies was heading into production, a shift occurred at the top of GM. Robert A. Lutz, one of the most admired car execs in Detroit, joined the company last fall and is now head of North American operations. Known for his love of classic, flowing car design, he has already softened the look of some upcoming models. If the new styling doesn't catch on, he won't hesitate to make further changes. Lutz is passionate about the need to bring Cadillac back. "A great deal of our corporation's reputation is tied up in Cadillac," says Lutz. "That's why we will not fail."

There's more than a little bravado in those words. Reviving a dying brand is perhaps the hardest job in marketing. Think of Polaroid--or Oldsmobile. "You've got to invest a lot and either overcome the negatives or start with a blank slate with a new generation," says Kevin Lane Keller, who teaches marketing at Dartmouth College's Amos Tuck School of Business. He says the job is even harder when it comes to cars, a category closely tied to one's sense of social approval. Automobile history is littered with once high-flying names like Packard, Duesenberg, and Studebaker that couldn't make the transition to a new generation.

For Cadillac, the challenges are even greater. A Cadillac backlash began in the '60s and '70s. While World War II veterans rewarded themselves with Caddy's giant land cruisers, the generation that protested Vietnam rejected the waste and ostentation. Besides, they didn't share their parents' reflexive belief in all things American.

Then came the early 1980s. Just as the baby boomers were moving into the market, Cadillac made some of its biggest missteps. Quality and style hit the skids at GM's luxury division, with the low point coming in the wake of the '70s gas crisis. As gas-sipping imports stormed the market, Caddy floundered. Fearing that gas would reach $3 a gallon, GM desperately slapped a Cadillac crest on its smallest--and shoddiest--model, the Chevy Cavalier. The poor quality, drab styling, and cramped feel of the Cimarron took years to overcome. Mercedes-Benz and BMW, meanwhile, offered up sleek alternatives that set a standard in engineering. Cadillac managed to alienate the biggest, richest, most committed generation of consumers ever to come along.

Cadillac long ago addressed its quality problems--though never reaching the pinnacle it once held--but the game had changed. Notions of success and status were different. The company man was replaced by a more entrepreneurial ideal. "Once that old hierarchy of climbing the ladder of success disappears, the notion of a status symbol takes on a different shape," says Gary S. Cross, a history professor at Pennsylvania State University and author of An All-Consuming Century: Why Commercialism Won in Modern America. "It becomes more of an expression of a personal style, and foreign luxury cars have done a better job of that." While the Cadillac generation saw cars and driving as a leisure activity, boomers see it as another arena for competition. They wanted performance, and in the new luxury imports, they found it.

Rob Mancuso, 51, an executive at Aon Corp., is a good example of who's not buying Cadillacs these days. "I'm in a BMW, and most of my friends are in Mercedes and Jaguars," he says. "If someone came into a meeting and said they bought a Cadillac, we'd think they were joking." Mancuso knows what he's talking about: Twelve years ago, he sold the Caddy dealership his grandfather started after he got a good look at Toyota Motor's new Lexus, which had just come roaring into the market.

Most rivals have written off Cadillac as an aging bit of Americana, but as the brand celebrates the 100th anniversary of its founding, there are signs of renewed interest in Caddy, interest that may gather momentum from the surge of patriotism following September 11. For one, there's the curious cachet of its late-to-the-party SUV, the Escalade. Much as Tommy Hilfiger's Waspy red-white-and-blue sweaters and windbreakers became all the rage with urban rappers a decade ago, the hip-hop world has embraced the lumbering Escalade. "It's just a cool vehicle," says New York rap artist Fabolous, who gave a metallic red "Slade" a starring role in his latest video. Fellow rapper Master P bought 10. Professional athletes also gravitate to the car. Says Mark Hennessy, owner of an Atlanta Caddy dealership: "The Escalade is bringing in an urban buyer that we've never seen."

Just as surprising, there are signs that young adults don't share their parents' contempt for Cadillac. For some twentysomethings, a rehabbed boulevard cruiser has become its own kind of status symbol. Meghan Hunt-Rider, 23, who manages a coffeehouse in Long Beach, Calif., picked up a '61 Coupe de Ville for $3,000 a few years ago. Twelve thousand dollars later, she has turned the faded relic into a metallic orange cruiser and has become so identified with it that people refer to her as "the orange-Cadillac girl." "Whether it's a '61 or a '98 Cadillac," says Hunt-Rider, "you think higher-class."

So where does all this leave GM in its quest to reinvigorate an American icon? At the start of what's likely to be, at best, a very long journey. After all, a dwindling cohort of affluent senior citizens, a relative handful of urban rap stars, and twentysomethings with an affinity for auto repair don't make for a large base on which to reignite widespread passion for a luxury car. Still, with a deep reservoir of nostalgia and affection for what Cadillac once was, the brand is not yet ready to be written off.

GM began to get serious about the task of reviving its luxury division five years ago. Wagoner was beginning to take a hard look at GM's aging and overlapping brands, an exercise that would eventually lead to the decision to retire Oldsmobile for good. Recognizing that only extreme measures could save Caddy, he brought in John F. Smith, who was head of GM's Allison Transmission Div., to head up the troubled brand.

In 1997, Smith and GM design chief Wayne K. Cherry set out to craft a radical look for Cadillac. Their goal: to evoke the Cadillac of old, back when the nameplate stood for the best in quality and technology, and to stand out from the parade of lookalike Mercedes and Lexus sedans. Taking design cues from sources as diverse as the Stealth Fighter and Bang & Olufsen stereos, Cherry came up with an edgy look that he called Art & Science, a reference to the days when Caddies were the most beautiful and most technologically advanced cars on the road. With its sheer, angular lines, the look is light years away from the Caddies of yore, which is part of the point.

But there was another reason for the extreme styling. A more graceful, flowing look would have run afoul of the brand-management scheme championed by Ronald L. Zarrella, the former president of GM North America. Under his plan, Buick was awarded the sensuous lines. "Inside GM, you have to stay away from your neighbors," says Jim Taylor, vehicle line executive for the CTS. "Buick has the corner on [elegance]. We went off on scientific and bold."

Smith and Cherry pitched two visions for the future of Cadillac to top GM executives in February, 1998. One was the safe choice, a stable of contemporary luxury cars that aped the conservative sophistication of European competitors. The other was Cherry's avant garde Art & Science look. The opposing styles sparked intense debate, says Zarrella, who is now chief executive of Bausch & Lomb Inc. Some feared Art & Science was too far removed from the understated elegance of the European luxury-car leaders. For others, though, the radical approach was exactly what the aging brand needed. "I was blown away by it," says Zarrella.

In a rare gutsy move from GM, the auto maker overcame its usual preference for safe and cautious and chose Art & Science. GM execs acknowledge that not everyone will like the new look, but they believe that it's better to make a strong statement than to blend in. They also committed resources. Over the next few years, the carmaker sent some of its best talent to Cadillac, including a new team of engineers, stylists, and marketers. And it built a half-billion-dollar state-of-the-art plant in Lansing, Mich., just for Cadillac that could become one of the most efficient in the country.

The recently launched CTS sedan, a sporty, entry-luxury vehicle that was four years in the making, is the first example of the Art & Science design to roll off the line. It isn't just the look that's new. Instead of the boatlike feeling of the old Caddies, this line comes equipped with rear-wheel drive and a sporty feel that's more like the European and Japanese luxury cars Cadillac now competes with. To make sure the CTS handles like a performance car, engineers spent three years flying back and forth to Germany, where they drove the car around the famed Nurburgring racing circuit, the demanding track BMW uses to test its cars. GM engineer Ken Morris drove it around the 12.8-mile track 400 times, often at speeds of 150 miles per hour. "My wife now considers this car another woman," he quips.

GM expects to sell only 30,000 of the cars in the first year, less than half that of class leader Acura TL, but the model's reception in the marketplace will be a critical test of the new styling. Priced at about $35,000, the CTS competes with the Mercedes C Class and Lexus, but current Cadillac General Manager Mark LaNeve does not expect to win over many of those buyers right away. Instead, he's hoping Cadillac's splashy new cars will convince boomers who drive lower-priced imports like Toyota Camrys and Honda Accords to trade up. The CTS comes equipped with the same GM-designed transmission that BMW licenses for its $45,000 5 series sedan, considered by car buffs to be the best-driving sports sedan on the market. (GM designed the transmission five years ago, but lacked a suitable rear-wheel-drive car of its own to use it on.) Says James N. Hall, a consultant with Auto Pacific Inc.: "It's a close second to a 5 series."

For a brand as eclipsed as Cadillac, performance alone may not be enough to get the car-buying public to sit up and take notice. For that, Cadillac is counting on its eye-catching design. To make sure the new look gets noticed, GM is spending some $150 million in advertising for Cadillac this year--a 50% increase over 2001. The CTS rollout was accompanied by TV commercials backed by boomer rock icon Led Zeppelin belting out: "Been a long time since I rock and rolled." To build buzz, GM is handing out new CTS sedans to celebrities like David Spade and Brooke Shields for six-month trials. Says LaNeve: "We have to make Cadillac cool again."

GM execs acknowledge they're somewhat flummoxed by how to handle the vogue for the Escalade among the hip-hop crowd. While Cadillac is trying to build on its image of sophistication and style, the Gangsta Rap scene is putting the Escalade in videos with vulgar lyrics. One song, Beat 'em Down to the Floor by Miracle, depicts band members using an Escalade in a shooting. For now, at least, GM marketers have no plans to exploit the fad, although they figure the subtle edge of notoriety can't hurt a brand viewed as benign and predictable for too long.

With most dealers still waiting for stock, it's too early to tell whether the futuristic CTS is finding an audience. Early surveys, however, are promising. In independent focus groups, CNW Marketing/Research found that the CTS rated 132 on a scale that puts mediocre design at 100 and where a score of 120 or better is considered an achievement.

The CTS is just the beginning. Next up are several vehicles that will fill gaping holes in the Cadillac lineup. Right now, for example, Cadillac has no car-based SUV like the $35,000 Acura MDX, or high-end convertible, two of the fastest-growing luxury segments. Cadillac will start with the SRX crossover sport-utility vehicle early next year, which will have the chiseled Art & Science look. Built on the CTS platform, the SRX will be priced at $35,000 to $40,000.

Later in '03, the XLR roadster will hit the streets as an alternative to stylish convertibles like the $60,000 Lexus SC 430 or the $92,000 Mercedes SL 500. The flashy, wedge-shaped car will be built alongside the Corvette in GM's Bowling Green (Ohio) sports-car plant and will employ Cadillac's brawny Northstar V-8 engine. The goal is to combine Cadillac luxury with the white-knuckle driving experience of a Corvette. Soon after that comes the Seville's successor, the STS sedan. "If those new vehicles are great, we'll be in great shape," says Dallas Cadillac dealer Carl Sewell. "If they're not, it will be very difficult for us."

But Caddy is still hedging its bets. To make sure it doesn't offend its core group of aging loyalists, the next-generation DeVille--the car of choice among the brand's older customers--won't get the sheer surfaces and harsh lines of the Art & Science look.

Whether Caddy's futuristic new look will captivate a bigger pool of buyers is certainly a question. But Cadillac must deal with an even bigger wild card: Bob Lutz. Lutz made his reputation in the '80s and '90s by helping to revive Chrysler Corp. He backed bold concepts like the PT Cruiser and Dodge Viper. Lutz believes that the flowing, sensuous lines of vintage European sports cars should be in the DNA of any luxury car, and he has made no secret of his dislike of Cadillac's stark Art & Science look. "Lutz thinks Cadillac styling is too edgy and too aggressive," says one senior General Motors designer. "He keeps saying he wants Cadillac to be beautiful."

Indeed, Lutz had barely arrived as GM's new head of product development last fall when he stopped by the design studios to check out Caddy's upcoming STS sports sedan, just getting its final touches. "He made the comment, `It looks like a kid with a big forehead,"' recalls stylist Kip Wasenko, referring to the high roof that was intended to give the car the most headroom in its class. The STS went back to the drawing board for changes that will delay its launch by six months. In addition to a lower roof line, it will get a softer front end and side windows that sweep in at the top to give it a faster look. LaNeve had already scrapped any reference to Art & Science in Caddy's ads, focusing instead on the brand's heritage and how it fits into contemporary lifestyles.

Soon after the STS was sent back to the drawing board, Zarrella resigned and Lutz was elevated to head of North American operations, giving him even more clout. Far more instinctive than Zarrella, Lutz is unlikely to be constrained by any fear of treading on another brand's design turf, as Cherry was when he conceived of Art & Science. For now, Lutz says that Cadillac's new look must be given a chance. "We'll see how well it is accepted," Lutz says. "No design direction lasts forever."

The success of Art & Science will depend in large part on whether it wins over any of the lost baby-boomer generation, many of whom have never owned an American car. Although comfortably ensconced in what should be their prime Cadillac-buying years, boomers can be vehement in their rejection of their parents' brand. Robert Pelzer, a 47-year-old corporate attorney in Delaware, is a good example. He and his wife have test-driven Caddies a few times but say they can't compare with the BMWs they now drive. "Every time it's been a disappointment," says Pelzer. "They don't seem to get it when it comes to making cars for people who like to drive." And Pelzer is a relative success story for Cadillac: At least he has been in a showroom.

It would be tempting to conclude that Cadillac could simply skip the baby boomers and go straight to their children, but that generation won't be in the luxury-car market for another decade or more. While Cadillac can't afford to simply give up on the boomers, it could take until the succeeding generation matures before the brand gains real momentum. Wagoner knows that Cadillac will have to fight hard for even a small slice of the boomer market. "It's clearly not a one- or two-vehicle turnaround plan," he says. "We have to go product by product and stay committed for a long time."

It's unlikely that any car will ever again enjoy the hegemony that Cadillac held 50 years ago. The market is far bigger and far more diverse than it was back then, and consumers today simply demand more in the way of personal choice. The challenge for Cadillac is to find a place in today's complex, ever-shifting marketplace. If it can't, Cadillac risks living on only in our memories and in midcentury newsreels of movie stars and statesmen.

Corrections and Clarifications ``Can GM save an icon?'' (Cover Story, Apr. 8) misidentified the location of General Motors Corp.'s Corvette plant. It is in Bowling Green, Ky.
Corrections and Clarifications In "Can GM save an icon?" (Cover Story, Apr. 8), the man pictured with his Escalade SUV was Darrell Wynn, 36, of Detroit, the owner of the Joint Airs record label.

By David Welch and Gerry Khermouch

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